Foreign aid can contribute to economic growth by increasing investment, imports of capital goods, and human capital development. However, aid can also fuel conflict by being stolen or appropriated by governments and militias to support warring factions. Pakistan is cited as an example - despite receiving over $100 billion in aid over decades, it has not experienced reduced conflict or improved development outcomes. The effectiveness of aid depends on factors like governance and policies in the receiving country.

1. FOREIGN
AID
CONFLICT
Development Economics
ECN 4101
Yogeta Gobin

2. QUESTIONS ASKED!
 What is foreign aid?
 How can foreign aid develop the world and
Contribute to economic growth?
 Who receives foreign aid?
 Who gives foreign aid?

3. WHAT IS FOREIGN AID?
Foreign aid is the transfer of resources from one country
to another; aid can be given by individuals,
organizations and the government of a country in many
forms.
Aid may serve one or more functions, Countries may
provide aid for further diplomatic reasons, Humanitarian
and selfless purposes are at least partly responsible for
the giving of aid. The most widely used measure of aid is
"Official Development Assistance" (ODA). It is widely
used as an indicator of international aid flow.

4. • Chenery and Strout (1966) claimed that foreign aid
promotes development by adding to domestic savings
as well as to foreign exchange availability, this
helping to close either the savings-investment gap or
the export-import gap. (Isse 129)
• Carol Lancaster defines foreign aid as "a voluntary
transfer of public resources, from a government to
another independent government, to an NGO, or to an
international organization (such as the World Bank)
with at least a 25 percent grant element, one goal of
which is to better the human condition in the country
receiving the aid."

5. HOW CAN FOREIGN AID
DEVELOP THE WORLD
AND CONTRIBUTE TO
ECONOMIC GROWTH

6. Rich countries gave more than $130 billion to Official
Development Assistance (ODA) in 2014.
Over the last five decades, western donors spent US
$4.14 trillion, the equivalent of more than seven times
the 2014 GDP of Nigeria.
These flows are topped up by support from non-
governmental organizations and other private charities,
and so-called new donor countries for example the
United Arab Emirates (UAE).
Yet, in many of the developing countries receiving the
aid, poverty still looms large and underdevelopment
persists.

7. The main role of foreign aid in stimulating economic
growth is to supplement domestic sources of finance
such as savings, thus increasing the amount of
investment and capital stock.
• (a) Aid increases investment, in physical and human
capital;
• (b) Aid increases the capacity to import capital goods
or technology;
• (c) Aid does not have indirect effects that reduce
investment or savings rates.

8. AID EFFECTIVENESS
Aid and Growth literature, Hansen and Tarp (2001)
 1st Generation: being influenced by the Harrod-Domar
model, mainly focused on the aid-savings link.
 2nd Generation: investigated the aid-investment-
growth link more directly without focusing on
savings.
 3rd Generation: investigated institutional polices in the
economy affecting aid.

9. • Burnside and Dollar (2000), found support for the
basic idea that an increase in aid flows strengthens
economic growth in poor countries when the policy
environment is favorable. In the presence of poor
policies, aid was not found to have any positive effect
on growth.
• Collier and Hoeffler (2004) found that aid works
particularly well in good policy environments a few
years after a conflict has ended.

10. WHO RECEIVES
THE LARGEST AMOUNT
OF AID?

11. Rank Country Categories Foreign Aid Received (1,000s of USD)
1 Egypt North Africa/ Middle East 5,505,650
2 Afghanistan South Asia 5,265,950
3 Vietnam South East Asia 4,084,770
4 Myanmar South East Asia 3,934,810
5 Ethiopia East Africa 3,826,250
6 Syria Middle East 3,626,750
7 Tanzania East Africa 3,430,280
8 Kenya East Africa 3,236,280
9 Turkey Asia/Europe 2,740,590
10 Bangladesh South Asia 2,669,110
11 Congo, Dem. Rep. Central Africa 2,572,220
12 Nigeria West Arica 2,529,480
13 India South Asia 2,435,680
14 Mozambique East Africa 2,314,140
15 Pakistan South Asia 2,174,110
16 Morocco North Africa 1,966,140
17 Uganda East Africa 1,692,560
18 Iraq Middle East 1,541,400
19 South Sudan North Africa 1,447,460
20 Jordan Middle East 1,407,900
21 Mali West Africa 1,391,300
22 Ghana West Africa 1,330,510
23 South Africa Africa 1,292,950
24 Cote d'Ivoire West Africa 1,262,000
25 Haiti Caribbean 1,170,550

12. WHO GIVES
FOREIGN AID?
(DONORS)

14. FOREIGN AID CONFLICT
At the Millennium Summit of 2000, the international
community agreed on certain Millennium Development
Goals (MDG) to be reached by 2015.
World leaders have acknowledged that objective
attainment depends on increased resource transfers as
well as improved aid effectiveness through donor co-
ordination.
Aid increase has been suggested in the Monterrey
Consensus (UN 2004) and (UN 2005).

15. • Humanitarian aid is one of the key policy tools used
by the international community to help alleviate
hunger and suffering in the developing world. The
main component of humanitarian aid is food aid.
In recent years, the usefulness of humanitarian aid
and food aid in particular, has received increasing
criticism, especially in the context of conflict-prone
regions. Aid workers, human rights observers, and
journalists have accused humanitarian aid of being
not only ineffective, but of actually promoting
conflict (Anderson 1999; deWaal 1997; and Polman
2010).

16. The question is what is triggering countries receiving aid
to be susceptible to conflicts? 
--Sudden aid shortfalls make governments relatively less
able to make enough side-payments or military
investment to preserve the peaceful status quo in the
future. However when the payments aren’t being made
the peacefulness in the economy is not kept, it gets rather
contradictory.

17. WHAT CAUSES FOREIGN AID
CONFLICT?
1. Aid stealing is one of the key ways in which
humanitarian aid fuels conflict. They highlight the
ease with which armed groups and oppositions
appropriate humanitarian aid, which is often
physically transported over long distances through
territories only weakly controlled by the recipient
government. Reports indicate that up to 80 percent of
aid can be stolen en route (Polman 2010, p. 121).

18. WHAT CAUSES FOREIGN AID
CONFLICT?
2. Political Reason for Aid Conflict: Aid is not only
stolen by rebel militias, but is also appropriated by
the ruling government, its military, and government
supporters. In other words, both sides of civil
conflicts can benefit from food aid. Governments
that receive aid often target it to specific populations,
excluding opposition groups or populations in
potentially rebellious regions.

19. WHAT CAUSES FOREIGN AID
CONFLICT?
3. However, aid can still fuel conflict even if it is
successfully delivered to the intended populations.
This is because the recipient populations are “taxed”
after receiving the aid.
They can be taxed from the goods and services being
imported to them for consumption and production
purposes.

20. FOREIGN AID AND PAKISTAN
• Pakistan is struggling with its poor development
outcomes. Its HDI position was 146 out of 187
countries in 2013 (UNDP 2014).
In general, these are considered sufficient conditions
for a society to be in conflict. Pakistan received a net
ODA of USD 117.6 billion in 1970–2012, but spent
almost the same amount on security and defense.
Huge inflows of ODA have neither reduced the
intensity and occurrence of conflict nor improved the
HDI.

21. FOREIGN AID AND PAKISTAN
 Why is the country in a state of continuing conflict? Is
aid a reward for combating conflict in Pakistan or the
prize money for rent seeking and rebels to capture the
state?

22. • Foreign aid creates conflict in an economy
receiving it, as for Pakistan, it has created a great
number of problems. US President Donald
Trump's administration suspended at least US
$900 million in security assistance to Pakistan,
beginning from January 2018. The country
although receiving a great amount of aid, shows
no development in recent times, all the aid given
is being diverted into military and terrorism
needs.

23. CONCLUSION
So whether or not Pakistan receives aid, it
somehow remains the same, as well as many
countries around the world including Haiti as
mentioned in Esther Duflo’s TedTalk
seminar. There is no silver bulletin as to
whether aid helps or aid doesn’t help, maybe
for some but not for all.

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