Q-12+Development

12. (a) What are the main forms of ‘aid’ provided for Less Developed Countries? (10) (b) What is more effective in promoting development, aid or trade? [M 98, 6]

a) The term 'aid' can be explained and defined as any assistance that is given to a country that would not have been provided through normal market forces. Aid is usually provided by More Economically Developed Countries (MEDC) to Lesser Economically Developed Countries (LEDC), in an effort to help these countries to achieve economic development, create and strengthen alliances between political parties, improve living conditions after a natural disaster or war, ext. This same aid can be provided by NGOs and charities in a category that is known as unofficial aid, contrasting that of official aid described above. Aid can be further broken down into, not only its origin but its type by two categories; humanitarian and development aid. Human aid is usually presented to countries that are suffering due to natural occurrences and wars and is often short-term. Humanitarian aid is often considered under the heading of grant aid that is provided as a gift and does not have to be repaid. Examples of grant aid that are often presented to LEDC's suffering from a lack of essentials as a result of destructive forces include; food, medical, and emergency aid that either presented unofficially or officially by an organization. Development aid is broken down into five types of aid, three of which are most commonly provided to LEDCs, these three are; tied aid, commodity aid, and aid in the form of long-term loans. Tied aid is traditionally provided in the form of grants to a developing country on the condition the funds are used to buy goods and serviced produced by the donor country. Commodity aid is grant aid given by countries to increase productivity and produce items to sell or donate back to the donor country. Long-term loans are a form of bilateral aid that is repayable by a developing country over a 10 to 20 year period.

b) The question between whether aid or trade is more effective in encouraging and promoting development is controversial and depends on political reasons, levels of corruption, the type of aid, and the infrastructure as well as the levels of education present in a country. Aid can be extremely ineffective in promoting development when a government is receiving aid for the wrong intentions and is corrupt. When a government receives aid and does not use it to better the people it has no use what so ever, this is especially a problem when the aid is official and requires to be either paid back or proof of its proper use in the form of produced goods needs to be shown. This phenomenon is known as indebtedness and is one of the major draw backs to growth and development in developing countries because of the level of payments countries have to make on this borrowed money. Another set back to aid is the idea that donor countries begin to think that the problems present in their countries are more important than that of those in other countries, thus reducing the flow of aid in a term known as 'aid weariness'. With consequences on both sides, trade becomes the best option to promote trade because it allows countries to produce and develop an economy that employs local workers to produce local goods that then fuel demand for local exports. When comparing aid to trade, aid on occasion creates issues that make developing countries dependent on foreign money to fuel their economy and thus making people work not as hard and falsely project the economies potential output. Ultimately private aid is the best solution to improving the economy of an LEDC, however it must be considered that some of the poorest countries cannot achieve this and therefore directly targeted aid from NGOs is the only option.