Wednesday, June 6, 2007

The role of private and official AID in economic development

  • Official aid is from governments or institutions like the world bank.
  • This aid is often conditional. For example, world bank insist on free market reforms
  • Some argue these SAPs (structural adjustment policies) can help reduce corruption and inefficiency. Others argue these SAPs create more problems than they solve. E.g. workers lose rights and increases inequality.
  • Sometimes government aid is only a soft loan - i.e money lent at a low interest rate. Loans are beneficial because they are more likely to be used where they are needed. However, others argue if the interest is very low, countries may have less incentive to worry about rates of return; this can encourage inefficiency.
  • AID is often earmarked for certain big projects, which give a reciprocol benefit to the developed country. However, these projects often do little to tackle causes of poverty and lack of development. Best loans are unconditional.
  • In theory private / charity will give AID where it is most needed rather, than for mutual benefit.
  • However, private aid may be insufficient to make a lasting difference. We cannot rely on private charity alone. Small charities may have high admin costs and not benefit from economies of scale. On the other hand they may have specialised information about particular problems governments are not interested in.
  • Private AID may disrupt local economies - creating dependency and disrupting local farming.

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