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Foreign aid

Syllabus: Explain that aid is extended to economically less developed countries either by governments of donor countries, in which case it is called official development assistance (ODA), or by nongovernmental organizations (NGOs).

Aid may be official, in which case it is administered by government or government agencies. This is called official development assistance (ODA).

Official Development Assistance (ODA)

ODA is defined by the OECD as

...those flows to countries and territories on the (Official List of ODA Recipients) and to multilateral development institutions which are:

  1. provided by official agencies, including state and local governments, or by their executive agencies


  2. each transaction of which:
    1. is administered with the promotion of the economic development and welfare of developing countries as its main objective
    2. is concessional in character and conveys a grant element of at least 25 per cent

Source: OECD

Unofficial Aid

Aid may also be unofficial, in which case it is administered by a non-government body, such as a charity.

These are referred to as non-governmental organisations or NGOs. The aid offered by NGOs is usually on a relatively small scale and designed to achieve specific development objectives.

Grants might be directed at technical services, or scholarships for some students to study in a particular country, and grants do not have to be repaid.

Aid might also be trade related, in that the monies will only be made available if the receiving country agrees to buy goods or services from the donor nation. This is called tied aid - the aid is tied to particular contracts, i.e. it has strings attached.

Successful aid should be an attempt to:

  • Overcome the low savings ratios recorded in developing economies. Most poor people consume the vast majority of what they earn.
  • Help reduce foreign exchange outflows, so allowing the domestic government to use such monies to build the necessary infrastructure for development.
  • Reduce the dependency on private investment, which may not arrive or will only be found at a high price to the country seeking such funding.

Successful aid should also:

  • Improve the living standards of the poorest people in the receiving country. This is not always possible, as government is normally based in the capital, which is by definition an urban centre. Like all political regimes, those in developing countries tend to serve those who elected them to office and power. Those who did not tend to receive little. If this persists, it can be a cause of unrest and even coups and military takeovers.
  • Move with the times and accept that what was fashionable several years ago may no longer be. Local opinion and knowledge is increasingly used when deciding on what to invest in, and why.

  • Not simply provide cheap food, except in an emergency, as this undermines the domestic agricultural sector. In some countries, once self-sufficient farming sectors have lost part of their domestic markets to food aid and now have to import part of their staple food crop.
  • Allow choice to be exercised by the receiving country. A problem with tied aid is that it reduces choice and the developing economy may not be getting the best deal.

Syllabus: Explain that humanitarian Aid consists of:

  • Food Aid
  • Medical Aid
  • Emergency Relief Aid
Syllabus: Explain that development aid consists of:
  • grants,
  • concessional long-term loans,
  • project aid that includes support for schools and hospitals, and
  • programme aid that includes support for sectors such as the education sector and
  • the financial sector.
Syllabus: Explain that, for the most part, the priority of NGOs is to provide aid on a small scale to achieve development objectives.

Syllabus: Explain that aid might also come in the form of tied aid (see above)

Syllabus: Examine the motivations of economically more developed countries giving aid.

Syllabus: Compare and contrast the extent, nature and sources of ODA to two economically less developed countries.