Conditionality of Foreign Aid and Its Consequences

Abstract

The role of foreign aid in the growth process of developing countries has been a topic of intense debate. Foreign aid is an important topic given its implications for poverty reduction in developing countries.

Since the second World War, foreign aid has been one of the most prominent policy tools that high income countries use for assisting low income countries to increase economic growth, improve population well-being and facilitate institutional development. In a 1970 resolution, the United Nations General Assembly specified that rich countries should aim to give 0.7% of their GNP to poor countries in the form ODA.

Given the enormous amount of resources put into foreign aid and the call from international policymakers to increase it further, it is unsurprising that aid has always been and remains a subject of controversy for academics and policymakers.

The purpose of the research paper is to analyze the concept of conditionality of foreign aid, its objectives, forms and the effects of foreign aid on the economic growth of LDC.

In the first chapter we analyze the concept of foreign aid and its definition from different points of view and sources.

In the second chapter we specify the top donors countries of foreign aid and their contribution to LDC.

In the third chapter, there will be presented the advantages and disadvantages of giving foreign aid and how foreign aid affects the LDC.

In the last section we present our point of view and opinion regarding the benefits of foreign aid, and also about the minuses of offering foreign aid.

Keywords: foreign aid, conditionality, official development assistance, developing countries, poverty reduction, low-income countries, International Monetary Fund, OECD, World Bank

JEL Classification: E61, E66, F02, F35, F53, F62, H11, H63, O23, P35