Growth and Development Strategies Part 2 (Aid, etc) Flashcards
(27 cards)
Foreign Aid
Aid to developing countries to improve economic, social, and political conditions.
Humanitarian Aid
Emergency assistance provided in response to natural disasters or crises
Debt Relief
Partial or total remission of foreign debt, especially those owed by low income countries
Why is aid given?
- Natural disaster/wars/emergencies
- Help achieve development
- Create/strengthen political/strategic alliances
- Fill the saving gaps, encourage investment
- Improve technology
- Get rid of access goods
- Strengthen military ally
- Reward for desired behavior
Advantages for Aid
- Moral obligation to transfer wealth → strengthens global welfare and solidarity
- A source of foreign exchange for LEDCs - buy capital equipment from abroad
- Can act as valuable supplement to the LEDCs domestic savings
- Can provide technical assistance (engineers to build infrastructure)
- Emergency aid in times of war, natural disasters and other serious problems.
Disadvantages for aid
- Distributed poorly, doesn’t go to those who need it
- Can be squandered by inefficient and corrupt governments.
- Benefits the donor more than the receiver.
- Tied aid
- No clear correlation between aid and development.
- Dependency is created = less innovation, and a welfare mentality
- Given for political reasons and not where the need is greatest
Advantages of Debt Relief
- The actual repayment of debt is removed or reduced
- The opportunity cost of debt repayments is reduced or eliminated
- Govt can use savings to fund new services and public/merit goods.
Disadvantages of Debt Relief
- More available funds can lead to corruption as officials try to access them.
- Debt forgiveness may lead to more borrowing, restarting the debt cycle.
Institutional change
- improved access to banking (microfinance and mobile banking)
- increasing women’s empowerment
- reducing corruption
- property rights
- land rights
Improved access to banking
- Improving access to banking = improves access to credit
- Lack of access to credit → slows investment → hinders innovation and skills development of the workforce.
- Firms can’t access to credit → cannot increase the production and productive capacity of the economy - thus helping with employment.
- reduced investment → less innovation → lower productivity → fewer jobs
Strategies to promote economic growth and development (Part 2 only)
Microcredit
Small loans given to poor borrowers who lack collateral, stable jobs, or credit history.
Microfinance + Pros and Cons
- small loans given to LEDC individuals for self-employment and income generation.
Pros:
- Can help start a business
- The loans can be targeted at women
- Running a business improves human capital and raises income
- Loan repayment helps to build self esteem
Cons:
- Some loans are not repaid
- Unethical (high management fees)
Increasing women’s empowerment
- Reduce excess female mortality - increase health care
- Close education gaps
- Improves access for women to participate in economic activities
- Limit continuation of gender inequality across generations.
- The additional income helps to break the poverty trap in LEDCs
Ghana, Rwanda
Reducing corruption
- More confidence in the economy and FDI increases
- Money allocated to development projects in the country actually gets used for development
- Higher national output boosts tax revenue, allowing more public and merit goods.
- More output creates jobs, raising household income.
Example: Colombia, Costa Rica, Paraguay
Pros and cons of Property rights
Pros:
- help households to generate income
- provide shelter security
Cons:
- may lead to monopolies as wealthy buyers accumulate properties.
- Monopolies reduce housing supply and drive up prices.
Land rights
- Ability to obtain, use and hold land at their will
- Strategies include: land reform, policies for dealing with sensitive issues
- Challenges: political and cultural differences, dysfunctional legal and institutional facilities
What are drawbacks of institutional change as a development strategy?
- Unpopularity for those in power (corruption)
- Long run rather than short run
- Without political support, can be stopped before able to have any positive effect
Bilateral Aid
Aid from one country to another
Multilateral Aid
Aid originating from more than one country group such as the world bank and IMF
Official Development Assistance (ODA)
- foreign financial assistance from donor governments rather than NGOs
- bilateral
Non-governmental organisations (NGOs)
- operate independently to deliver specialized aid programs.
- work directly with local communities, focusing on specific development challenges.
Multilateral development assistance (MDA)
Joint support from multiple countries or organizations to developing nations.
9A The World Bank Group
- Provides long-term development loans and assistance
- Focuses on poverty reduction and structural development
- Operates through IBRD for middle-income countries
- Offers IDA support for lowest-income nations
