The Economics of Foreign Aid
Foreign aid provides billions of dollars for development and financial assistance, given mostly to developing countries by the world's wealthiest nations, such as the United States and Japan. A staple of international finance since the end of World War II, foreign aid has become a subject of political and economic controversy. Donor nations use aid to further their political and economic interests. Some critics say foreign aid fosters dependency among poor nations, and others see the aid as a form of Western imperialism.
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Function
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The Congressional Budget Office, or CBO, has reported that foreign aid generally reflects the political and economic interests of donor nations. CBO said most U.S. foreign aid after World War II went to European nations devastated by the conflict to rebuild their economies and infrastructure. By the 1970s, the nation directed aid toward the Middle East because of its pivotal role in U.S. energy and economic interests. Other countries' foreign aid spending follows their national interests, according to CBO, which noted that Britain and France provide most of their aid to former colonies and Japan devotes most of its spending to Asian nations.
Size
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In 2008 the United States provided $26 billion--less than 2 percent of total federal spending-- in foreign aid, Parade magazine reported in its issue of Dec. 14, 2008. That amount does not count funding for U.S. wars in Iraq and Afghanistan, the magazine said.
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Geography
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About 150 nations received U.S. foreign aid, according to Parade. The countries that received the most included Israel, Egypt, Pakistan, Jordan and Kenya. Most of the assistance is for military, security and anti-terrorism programs, according to the magazine.
History
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Foreign aid became a significant element of international political economy after World War II, according to Political scientist Robert Gilpin, author of "The Political Economy of International Relations." Under the Marshall Plan, the United States provided aid to Europe, devastated by the war. As European countries and Japan recovered and prospered, they provided aid to developing nations. International organizations such as the World Bank and the International Monetary Fund developed to provide aid to poorer nations.
Considerations
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Conservative critics say foreign aid fosters socialism through excessive intervention by governments in their countries' economies, Gilpin wrote. They also contend that foreign aid rewards poorer nations that live beyond their means. Marxist critics view foreign aid as a tool of imperialism through which wealthy nations dominate the economies and governments of poorer, developing countries.
Effects
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The CBO points out the difficulty in gauging what effect, if any, foreign aid has on the economic growth and development of recipient nations. Many factors other than foreign aid influence and propel economic growth. These various trends can occur at the same time as the flow of foreign assistance, exacerbating the difficulty of determining the amount of influence that foreign aid had.
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