Development Aid (Foreign Aid)Development aid (foreign aid) is the financial aid which the government gives out to help in supporting the economic, environment, political as well as, social development of developing countries. Today, aids projects seem to work; however, the project does not fully aggregate into major development breakthroughs. Therefore, if aid effectiveness is to be linked firmly to development strategies, then the balance of today’s allocation will definitely change. The impact of foreign aid on economic growth has become a controversial issue. According to Boone (1996), he argues that foreign aid flows as a moral obligation of the rich countries that will send forth mighty hopes of ending poverty. In summary, this paper will discuss development aid and ways of making development aid effective.Development aid is renowned to take many forms. The most significant with regards to its size and influence is the official aid. From the definition of development aid, it can be noted that the foreign is not a free resource transfer that arrives with political and economic conditions. As a result, the role of the official aid should focus on finding ways of organizing and encouraging the new partners for profit and nonprofit in the productive fashion (Bauer & Onslow, 1999). The aim of development aid is to offer technical solutions to the social problems or issues without altering the basic social structure. The aid mainly targeted the poor countries, but a disturbing question was that, why would some countries be poor than others. The reason was that, the disparities in living standards across most countries in the world were spectacularly large. Therefore, when using the capita income figures, it was found that the average of the citizens of the wealthy country were consuming much n few days as compared to what the poor countries would consume in a year (Hansen & Tarp, 2000). Other factors, which made some countries be poor include the large differences which existed as a result of using other measures of well-being that includes educational attainment, life expectancy and infant mortality. Given that living standards usually relates to productive capacity, poor countries as well continue becoming poor because they do not produce very much (Burnside & Dollar, 1997). Development aid in countries is often given for various purposes. For example, some countries may get foreign aid for building and infrastructure, expanding access to an education along with responding to the humanitarian emergencies. Foreign aid in its modern form intensified after the disruption which followed the Second World War. Research shows that development aid is very significant in supporting the economic growth in the developing countries (Easterly, 2002). Conversely, there is evidence that, the development aids’ impact on the growth is contingent on the policies of the recipient countries, therefore as the aid works in all countries, it tends to work better in countries that have better policy regimes. Although, there is more evidence which suggests that the development or foreign aid works well in some countries irrespective of quality of the policy regime. Irrespective of whether regime policy is significant for development aid effectiveness, it must be emphasized that both groups of studies happen to agree that aid works in one way or another (Bauer & Onslow, 1999).Ways of making development aid effectiveForeign aid is often regarded for not contributing to economic growth and reduction in poverty. This has become of great concern given that the role of aid is to ensure that it plays an important role more so in achieving the Millennium Development Goals (MDGs). Currently, the question of making development aid effective has moved to the centres of the development debates. Therefore, if the aid donors really want to make their aid to become more effective, then they need to engage with the private sectors more strategically (Burnside & Dollar, 1997). Research shows that the development of the private sectors is currently the most powerful tool that helps in lifting many people from poverty. According to the strategy paper for the Dutch foreign ministry, the paper reported that the private sectors have become the heart of the development processes, this is because, the sectors are driven by the quest for profit whereas they manage to invest in the new markets as well as, new facilities, which helps in strengthening the foundation of the economy (Temple, 2010).Conversely, for countries which have been successful in emerging from poverty in the past years, it is evident that the private sectors driven the process. For instance, a study carried out by the United Kingdoms’ Department for International Developments (DFID) found that there was an increase in exports between 2003 and 2004 which led to the formation of many jobs and additional income. In countries such as China, the study also found that the private sectors do not only contribute to economic growth of the China economy, but it also helped the country to cope with various societal impacts of the decline within the state industry (Burnside & Dollar, 1997).There are many ways in which the donors can make the development or foreign aid to be more effective. Firstly, the donors should build on the guiding principles. According to Bauer & Onslow (1999), they both argued that the framework developed for management of the corporate impacts on the human rights recognizes the needs of joining-up approach for companies and states if beneficial impact is to be achieved from the aid. Secondly, the donors can harness the effectiveness of development aid by rethinking on the United Nation Global impact (Burnside & Dollar, 1997). For instance in 1999 when the UN secretary General Koffi Annan proposed the establishment of the Global Compact, he described it as an initiative that would bring the companies together with the UN agencies and civil society that would support the universal environment as well as social principles (Bauer & Onslow, 1999).Thirdly, the development aid can be made more effective by encouraging the engagement of the corporate sectors at a country level. According to Burnside & Dollar (1997), they both report that the main aim of the donor agencies along with the host governments is to create a comprehensive development plans that will help in poverty reduction across the countries. However, the systematic impact of these on corporate seems to be very minimal (Kanbur, 2003). The fourth way to make the development aid effective is by moving the corporate sectors more centrally to the operation of the donors or donor agencies. Given that the development or foreign aid has great significance on the corporate sectors, the corporate sectors should therefore ensure that they at all times work in hand on hand with the donor agencies to improve the growth of these corporate. As a result, the United Kingdoms’ Department for International Developments new strategy to work closely with the corporate sector may be highly welcome, despite the fact that the primary focus of other donors remains “development as healthy” (Bauer & Onslow, 1999).

Therefore, it is evident that the correlation between the economic growth and foreign aid has drawn a significant attention many years. A study conducted by Bauer & Onslow (1999) demonstrates how aid to the African countries is not only increasing economic growth, but it also helped the nation in reducing poverty. However, the government of the poor countries supported by the development aid are said to be having very little incentive for raising the productive potential of the poor (Burnside & Dollar, 1997).

Conclusion

Every nation should recognize that both the donor agencies as well as companies perform different roles in the economic development process. It is therefore necessary for the corporate sectors to engage strategically with the donors to leverage their limited resources as well as, to demonstrate that their efforts for sure will contribute to pro-poor growth. As a result, by collaborating with companies, donor agencies can usually make aid to work. Consequently, the corporate sectors that were seen to participate in the aid growth were recognized to do better in terms of productivity growth.

The evidence also indicated that sustaining foreign assistance programs at reasonable levels is significant in enhancing the living standards of the world’s poorest people. However, abolishing foreign aid on the other hand will drastically cut it back. Despite the challenges of improving the development aid effectiveness, the program still ensures that it improves the effectiveness of development aid so that living standards of people in poor countries become substantially advanced.

References

Bauer, L., & Onslow, M. (1999). Journal Of Economic Development . Evaluating The Impact Of Foreign Aid On Economic Growth: A Cross-Country Study . Retrieved December 9, 2012, from http://www.jed.or.kr/full-text/30-2/J02_702.PDF

Boone, P. (1996). Centre For Economic Performance . Politics And The Effectiveness Of Foreign Aid. Retrieved December 9, 2013, from http://eprints.lse.ac.uk/20690/1/Politics_and_the_Effectiveness_of_Foreign_Aid.pdf

Burnside, C., & Dollar, D. (1997). Aid, Policies and Growth. Macroeconomics and Growth Division. Retrieved December 9, 2013, from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.195.7209&rep=rep1&type=pdf

Easterly, W. (2002). Can Foreign Aid Buy Growth? . Can Foreign Aid Buy Growth? . Retrieved December 9, 2013, from http://www.nyudri.org/wp-content/uploads/2011/10/canforeignaidbuygrowth.pdf

Hansen, H., & Tarp, F. (2000). Journal of International Business and Cultural Stud ies . The effect of foreign aid on economic growth in dev eloping countries . Retrieved December 9, 2013, from http://www.aabri.com/manuscripts/09359.pdf

Kanbur, R. (2003). The Economics of International Aid. 1 The Economics of International Aid. Retrieved December 9, 2013, from http://www.arts.cornell.edu/poverty/kanbur/handbookaid.pdf

Temple, L. (2010). From aid to global development policy. From aid to global development policy. Retrieved December 9, 2013, from http://www.un.org/esa/desa/papers/2012/wp121_2012.pdf