Need For Foreign Aid in Economic Development

Need For foreign Aid in economic development Few developing countries have been able to carry on their development programmes without foreign aid. The reason is obvious. They have entered the race for economic development late and they are impatient to

Need For foreign Aid in economic development

Few developing countries have been able to carry on their development programmes without foreign aid. The reason is obvious. They have entered the race for economic development late and they are impatient to catch up with the advanced countries at the earliest. But the domestic resources are meager in relation to their requirements or their ambitions. There is no doubt that they do make an effort to mobilize their own resources in the form of additional taxation, borrowing, profits from public enterprises, compulsory savings and optional savings in the form of provident funds, and so on. But there arc limits in every direction which they do not consider prudent to cross. They also resort to deficit financing to an extent, but there are inherent dangers of inflation in this form of resource mobilization. In these circumstances, resort to foreign aid becomes inevitable.

Role of Foreign Aid in economic development

There is no doubt that foreign aid can play a very important role in helping an under developed country, desirous of quick economic growth, to break the vicious circle of poverty and to march forward on the bright road to economic development. To achieve a high rate of economic growth necessitates a high rate of savings and investment. But such countries are too poor to afford this. Their own savings are too meager to make a high rate of investment Feasible to come out of the low-level equilibrium. Foreign aids help significantly in supplementing Domestic Resources.

 

Foreign aid can play a crucial role to enable the resources-poor countries to achieve a desired fate of growth by supplementing their domestic resources. This would make it possible for them to raise their level of investment to the desired level. In the absence of foreign aid the level of investment is bound to remain too low to enable them to cross the low-level equilibrium and the economy will not be able to come out of the vicious circle of poverty. Without foreign aid an under-developed country can speed up the growth process by pitching high the taxation level which may be considered politically dangerous or by resorting to deficit financing which may be economically perilous.

 

Hence foreign aid must step in to enable an under-developed economy to achieve a high rate of growth with economic stability (i.e. stability of prices)

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