international aid and development Flashcards
(18 cards)
What is foreign aid?
Transfer of resources from developed to developing countries to promote economic development and welfare. E.g., UK giving aid to Malawi for school building programs.
What are the main types of foreign aid?
Grants, concessional loans, bilateral aid, multilateral aid, tied aid, and emergency relief.
What is bilateral aid?
Aid given directly from one country to another, often influenced by political or strategic interests. E.g., UK aid to Pakistan to support education reforms.
What is multilateral aid?
Aid distributed through international organisations like the World Bank or IMF. E.g., IMF loans to Ghana to support macroeconomic stability.
What is tied aid?
Aid that must be used to purchase goods or services from the donor country. E.g., a UK grant requiring recipient to buy British machinery.
What are the advantages of foreign aid?
Fills savings/investment gap, supports education and health services, helps in disaster recovery. E.g., post-earthquake relief in Haiti funded by the UN.
How can aid support long-term development?
By funding infrastructure, education, and healthcare systems that boost productivity and living standards.
What are the disadvantages of foreign aid?
Dependency risk, potential corruption, market distortions, tied aid inefficiency. E.g., free food aid undermining local farmers in Ethiopia.
How can foreign aid lead to dependency?
Regular aid inflows may discourage domestic tax collection and reduce incentives for economic self-sufficiency.
How does aid risk causing market distortions?
Free goods or services may undercut local suppliers, harming domestic production.
What is the role of aid in closing the savings gap?
It provides funding for countries with low domestic savings, enabling more investment in growth-enhancing projects.
How can aid be used to improve human capital?
By investing in education, training, and healthcare, which increases labour productivity and long-term growth.
What is capital flight?
The sudden and large-scale outflow of financial assets or capital from a country due to instability. E.g., investors pulling money out of Argentina during inflation crises.
What causes capital flight?
Causes include high inflation, unstable politics, or currency fears. E.g., capital outflows from Russia during geopolitical tensions.
How does capital flight affect development?
It reduces funds available for investment and public spending, weakens currency, increases borrowing costs, and can worsen inequality.
How does capital flight affect exchange rates?
Capital outflows reduce demand for the domestic currency, causing depreciation and potential inflation.
How can governments reduce capital flight?
By maintaining macroeconomic stability, strengthening financial institutions, improving transparency, and enforcing capital controls if necessary.
Why is capital flight more common in developing countries?
Due to weaker institutions, higher political risk, and overreliance on foreign investment for funding development.
