IB Docs (2) Team
The role of foreign aid
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Introduction
This lesson focuses on the role of aid in assisting economic development in LEDCs. This lesson also looks at a question debated by economists for almost as long as nations have been receiving aid. Does providing aid to LEDCs improve human development? Under the old syllabus this page was covered under unit 4.6.
Enquiry question
What role does AID play in the development of LEDCs. What are the different types of AID provided to LEDCs?
Lesson time: 2 hours
Lesson objectives:
Recognise that aid is extended to economically less developed countries either by governments of donor countries, in which case it is called official development assistance (ODA), or by nongovernmental organisations (NGOs).
Recognise that humanitarian aid consists of food aid, medical aid and emergency relief aid.and that development aid consists of grants, concessional long-term loans, project aid that includes support for schools and hospitals, and programme aid that includes support for sectors such as the education sector and the financial sector.
Understand that for the most part, the priority of NGOs is to provide aid on a small scale to achieve development objectives.
Examine the motivations of economically more developed countries giving aid and understand that aid might also come in the form of tied aid.
Evaluate the effectiveness of foreign aid in contributing to economic development. Compare the roles of aid and trade in economic development.
Teacher notes:
1. Beginning activity - begin with the opening video and then discuss this as a class. (Allow 10 minutes in total)
2. Processes - technical vocabulary - the students can learn the background information from the videos, activities 1 and 2 and the list of key terms. Allow 30 minutes in total for the key terms and questions on activity 2.
3. Developing the theory - activities 3 and 4 contain a video and discussion question. (15 minutes)
4. Apply the theory - activities 5 and 6 focuses on the question, why do nations provide aid - is it an act of kindness to do so (15 minutes)
5. Focus on the enquiry question - reflection - activities 7 and 8 develop the enquiry question - does aid help or hinder development and wouldn't the world's fully Developed nations be more constructive in opening up their markets to LEDCs, rather than focus on aid. (30 minutes)
6. Link to the assessment - activity 9 consists of a paper two type (a - d) questions on this topic. (30 minutes)
Key terms:
Aid - defined as any assistance provided to a country that would not otherwise have been given if left up to market forces.
Official aid is provided to a country by another government or governmental organization such as UN or EU.
Tied aid - loans given to a nation, dependent on the condition that the funds are used to purchase goods and services from the donor country.
Project or grant aid - aid given to a LEDC for a particular development project, in the form of a grant which does not need to be repaid.
Technical aid - assistance provided in the form of technical help, such as the provision of doctors, teachers or engineers, rather than financial assistance.
Bilateral aid - provided from one nation e.g. USA to another.
Multilateral aid - money that is given by countries to international (or multilateral) institutions which are distributed to countries.
Humanitarian aid - aid designed to alleviate suffering in a specific area, e.g. funds used to help rebuild infrastructure after a disaster as well as provide immediate relief to areas affected by natural disasters.
Development aid - aid given to enhance the standard of living and includes grants, concessional long-term loans, project aid, programme aid, debt cancellation, technical assistance, humanitarian aid, multilateral aid, bilateral aid.
Remittances - funds paid to family members back home by expatriates / refugees working overseas.
Soft loans - loans paid to a nation or organisation to be repaid at interest rates below the market rate.
Hard loans - loans paid to a nation or organisation to be repaid at commercial rates of interest.
Grant aid - monies paid that do not have to be repaid.
NGOs - usually non-profit organisations and often funded by governments, NGOs are active in relatively small scale humanitarian, educational, health care and development projects in LEDCs.
The activities on this page can be accessed as a PDF file at: 
Foreign aid
Activity 1: Recognising the different types of aid
Watch the following short video and then make a list of the different types of aid that a nation, such as Australia provides.
The video recognises the following types of aid:
Programmes provided by NGOs aimed at improving development within LEDCs. These projects are funded by individual households and are then targetted at specific projects, such as providing clean water.
Immediate disaster relief such as the World Vision programmes that provide education in Refugee centres.
Official development assistance provided by national governments, on a bilateral basis.
Official development assistance provided by national governments, on a multilateral basis. This is then distributed via organisations such as the World Health organisation or GAVI.
Activity 2: What is aid?
Start by watching the following short video and then answer the questions that follow:
(a) What is aid?
Aid can be defined as any assistance provided to a country that would not otherwise have been given if left up to market forces
(b) What is the purpose of aid.
Improving development or living standards in a country
(c) What are some of the different types of aid?
Humanitarian aid, development aid, bilateral and multilateral aid, technical and financial aid - amongst others.
(d) Distinguish between the following types of aid:
i. Short term and long term aid
Short term is designed to alleviate a short term situation and is usually humanitarian in nature e.g. relief for victims of an earthquake or outbreak of say malaria in a region. The money is provided with a specific goal in mind.
Long term aid would be aimed at improving development and living standards over a period of time.
ii. Bilateral and multilateral aid
Bilateral aid is provided from one nation e.g. USA to another while multilateral aid is provided via a third party e.g. the UN or UNICEF.
(e) Distinguish between development aid and humanitarian aid.
Humanitarian aid may come in a number of different forms it is usually called grant aid because it does not have to be repaid. Aid of this type can be used to help rebuild infrastructure after a disaster as well as provide immediate relief to areas affected by natural disasters. Other examples of humanitarian aid are food aid and medical aid - designed to alleviate suffering in a specific area.
Development aid, which is called Official Development Assistance (ODA) is designed to improve conditions in the long term. This can take the form of technical training, improvements to hospitals and schools, with the aim of the LEDC seeing direct improvements in HDI through increased years of schooling and life expectancy levels.
(f) Distinguish between aid provided by governments and aid provided by private organisations such as NGOs and smaller private charities.
Aid provided by governments is official aid and can be provided either bilaterally or through an organisation such as the UN - multilateral aid.
Aid provided by NGOs and charities is unofficial and is often able to provide actual targeted help on the ground.
(g) Explain the role of aid in strengthening political alliances.
As the video highlights the routes of aid can be traced back to the cold war when the West and Soviets would compete on aid, providing assistance to LEDCs happy to champion their cause. In recent times China has been particularly active in this area with significant contributions made to nations in Africa in return for a combination of good press and winning hearts.
(h) Explain the role played by remittances in helping LEDCs.
According to the video remittances sent back to the donor country can make an enormous difference to the quality of life in LEDCs but critics also state that the remittance system encourages a dependency culture.
(i) What figure is sent back as remittances each year to family members in the host country.
$ 542 billion, mostly to LEDCs.
(j) Are long term loans made by Western banks to LEDCs considered a form of aid?
Yes loans made to Developing nations are included as aid.
Activity 3: Are rich nations doing enough to help the poor?
Start by watching the following short video and then decide whether you believe that the rich nations are doing enough in fulfilling their obligations towards poorer nations.
Bill Gates states that in some ways the wealthy nations are being more generous than ever and highlights the UK as an example of a nation doing their best. Brazil and China also, once recipients of aid, are now beginning to provide aid to poorer nations for the first time. On the negative side only 69 very wealthy individuals have signed up to his pledge to give away the majority of their wealth to those less fortunate than themselves.
Bill also makes the point that money invested within LEDCs can go 100 times further than if it were invested in wealthy nations.
Activity 4: Largest contributors to the worlds aid budget
OECD countries donated $ 146 billion dollars in 2022. The largest contributors were as follows:
Nation | Billion $s donated | GDP (billion $) | Aid budget as a % of GDP |
USA | 34.62 | 20,899 | 0.17 |
UK | 19.37 | 3,132 | 0.62 |
Germany | 23.81 | 3,850 | 0.62 |
Japan | 15.51 | 5,060 | 0.31 |
Sweden | 5.44 | 635.7 | 0.86 |
Netherlands | 5.29 | 1,013 | 0.52 |
Canada | 6.40 | 1,152 | 0.56 |
Norway | 4.28 | 482.7 | 0.89 |
Turkey | 8.65 | 819 | 1.05 |
Italy | 4.90 | 1,890 | 0.26 |
(a) Complete the table above by filling in the blanks above
(b) How many of the nations in the table are fulfilling the UN obligation of donating 0.7% of GDP towards official aid?
Just two, Norway and Turkey
Activity 5: Why nations provide development aid
Watch the following short video and then decide why nations provide development aid?
While there is little doubt that individuals and individual nation have good intentions when it comes to providing development aid, there are a number of critics of the current system. Many of the funds allocated for development aid ends up in the hands of corrupt elites, with little going to the populations of the Developing nation. Large amounts too are tied to other contracts and benefit the donor country more than the receiving one.
That said, to suggest that all development aid is ineffective ignores the enormous strides made in areas such as the reduction of poverty, which aid must have played a role in.
Activity 6: Group brainstorming activity
In small groups consider the following two questions:
i. List all the reasons that nations provide aid - humanitarian as well as development aid.
To help people in times of war or natural disaster, providing immediate short term relief and prevent outright malnutrition and / or starvation.
To facilitate development in LEDCs so that the nation enjoys improvements to living standards over time.
To strengthen political alliances.
Providing aid can also be a statement of prestige, a marketing statement that a nation is now successful and has reached the big league in terms of development, e.g. China and India provide aid to nations despite themselves being poor nations.
Aid can also be used as a way of promoting domestic businesses - sometimes called tied aid.
ii. List some of the disadvantages of aid - for both the donor and the receiver.
An increase in dependency as wealthier nations make aid payments in order to carry favour. This can be withdrawn at short notice if their political objectives or alliances change.
Furthermore, many large amounts of are not gifts, but provided in the form of loans.
Aid also often fails to reach the poorest sections of a nation. In some cases aid provided is squandered and the burden of repayment is made by the citizens of that country.
When aid is made in the form of direct foreign investment profits from the business are then repatriated back to the donor country.
Activity 7: The role aid in promoting development
Watch the following two short videos and then answer the question, 'to what extent is aid effective in promoting development within LEDCs?' Which of the two arguments do you find most convincing?
First a short video which supports this view.
And now for the opposing view
The first video states that foreign development aid has yielded a rate of return of 10% per year, a very high rate compared to other methods of investment. While direct evidence is sometimes difficult to find the commentator Finn Tarp highlights the fact that so many LEDCs are now growing. Many of those same nations are also recipients of aid. A good example being Vietnam, which is close to no longer requiring outside assistance. Aid is particularly useful when invested in human capital and the sharing of knowledge.
By contrast in the second video the commentator, Dambisa Moyo pleads with governments to stop providing aid to the African continent. While she supports short term, small scale humanitarian aid, Dambisa claims that such aid does nothing to help the development of African nations long term. She claims that the provision of health, education and infrastructure projects are basic public goods which should be provided by all governments - even those in Africa and therefore it is not the responsibility of Western nations to provide those services. By providing assistance to some of the poorest nations well meaning western individuals simply create a cycle of dependency and a small number of very wealthy elites.
Activity 8: Reflection, trade or aid?
Based on what you have learnt in recent lessons consider the following question: 'Which is the more effective in fostering economic development, providing aid or greater access to world markets through trade'? Watch the following two short videos and then decide.
Video 2:
The videos come out very strongly in favour of aid, not trade but perhaps a combination of the two is the most desirable. Increased inward investment which creates jobs identified by the first video plus greater information identified in video 2. One point not identified by either video, however, is the importance of infrastructure improvements, which can be delivered using aid monies. Without improvements to infrastructure any chance of increasing exports and creating jobs is surely very small?
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