Foreign aid is the voluntary transfer of money, resources, or services (in the form of a gift, grant, or loan) from one country to another, or from an international organization to a certain country, for the ultimate benefit of the recipient country. Hence, the implication here is that the recipient country is in a position of debt, shortage, or some economic strife, such that it requires the assistance of other countries or international organizations (UN, NGOs, and other foundations). It is commonly seen when the more developed countries of the world provide aid to the developing nations, especially after they have suffered from some natural disasters, economic crisis situations or serious conflicts that have caused widespread damage.
Foreign aid, however, is not a purely humanitarian practice, and many countries engage in it with varying objectives. Some countries provide foreign assistance with the objective of furthering the political agenda of a government, thereby allowing it to attain diplomatic recognition. Thus, apart from solely providing economic and social support to the country, many donors provide aid as a means to strengthen and consolidate their political and strategic interests in the country or region.
Many economists argue that foreign aid fosters dependency and corruption in recipient countries, while others argue that it fosters economic growth and helps countries in their development. It is thereby a two-handed conclusion that is arrived at here, where we can say that foreign aid can have strong positive effects, but it clearly depends on what it is used for by the recipient, and whether it is invested efficiently and effectively.
What is Foreign Economic Dependency?
Foreign economic dependency is an international power structure in which weaker countries end up relying on economically stronger countries for financial support, which thereby allows the stronger countries to exercise a certain degree of economic and political control over the weaker nation.
Foreign economic dependency is one of the most important ways in which a country can regrow and rebuild itself after a natural disaster. It does this by getting foreign medical aid and disaster aid, and it helps in rebuilding livelihoods by helping the victims of the calamity directly. Without foreign economic aid a country would definitely have a much more difficult time to rebuild itself. However, dependency on foreign aid also often plays a significant role in shaping the economic and political framework of the weaker nation. The donor countries often use the aid they provide to push forward the economic and political policies preferred by them in the target countries. The receiving nation cannot do much in this case as there is the threat of the powerful nation ending the aid if the receiving nation does not comply with them.
Foreign aid is not only from countries but also from international organizations like the World Bank, but these organizations also might force their economic policies on the receiving nation. For example, the country must agree to adjust its economic structure, liberalize and privatize its economy and also increase its financial accountability. Moreover, paying back these huge loans is a difficult task for the receiving nation while trying to maintain/build a healthy economy at the same time, which leads to their economy taking significant damage.
Hence, foreign dependency usually leads to lesser development in the economically dependent country because it has to tailor its policies to the interest of the stronger country, and this usually leads to the weaker country neglecting to do things which are best for its own development. This causes things like faster environmental destruction and creation of only temporary growth that prevents sustainable development and economic independence.
It can be concluded that the ultimate question about whether foreign aid is really effective or not has not yet been fully settled. This is due to the fact that there is enough evidence to convince a person of both sides of the argument. While there have been cases where foreign aid has done wonders, like in Ethiopia, there are also cases where foreign aid has worsened countries, like Somalia. It is essential for recipient countries to give due importance not only to their economic policies, but also in ensuring that foreign aid is directed towards productive and beneficial causes in the country.
The unfavorable result, as discussed in this article, is when foreign aid leads to economic dependency. In such cases, countries are left with little to no autonomy, and the stronger countries get a say in how to operate them for their own benefit. As long as such a situation is avoided, and foreign aid is mainly helpful for the purposes of resolving humanitarian crises and assisting underdeveloped countries, then it is a helpful practice.