For the last three decades overseas aid has emerged as a dominant strategy for alleviating poverty in the third world. During this period major international institutions such as the UN, World Bank and IMF gained reputation in the global economic affairs. Yet it seems that the lesser developed countries (LDCs) continue to suffer from economic hardship raising the questions whether overseas aid is worthwhile and effective approach to boosting growth and development in recipient economies. Research on the subject has attempted to draw experimental connection between overseas aid and economic growth in particular and development in general. Despite these research efforts, however there is no concrete agreement among scholars on actual effectiveness of overseas aid (Raghuram G, Rajan & Arvind Subram, 2005). The term “Overseas Aid” can imply all money that would be classified as official development assistance, and it incorporates military assistance, political development programs, export promotion, debt forgiveness, and non-concessional lending by all bilateral and multilateral organizations. Any money that benefits a developing country in form of grants, concessional loans, or non-concessional loans from a governmental or quasi-governmental organization is considered overseas aid according to Congressional Budget Office. Critics of development assistance cite a variety of reasons why it is a poor strategy for combating global poverty. Some argue that it can breed corruption weaken accountability, and cause government to become excessively large (Knack, 2001). Nonetheless as researchers (Hansen and Tap, 2000) write, “It is neither analytically defensible nor empirically credible to argue from the outset that aid never works”. Indeed, a number of studies have shown a positive relationship between overseas aid and development especially in countries which have sound economic policies that promote trade curb inflation and other macro-economic concerns.
Reasons why overseas aid is given:
Foreign aid’s purpose is usually to promote the nation’s self-interest. Economic aid, like military assistance, can be used for strategic purposes – to strengthen Less Developed Countries’ allies (LDCs), to shore up the donor’s defence installations, to improve donor access to strategic materials, and to keep LDC allies from changing sides in the international political struggle. Assistance can be motivated by political or ideological concerns – to support a military ally; influence behaviour in international forums; to strengthen cultural ties; or to propagate democracy or capitalism. Overseas aid can also be provided for humanitarian motive whereby development is a compassionate response to the extreme poverty or humanitarian suffering that becomes intolerable (Heindorf lecture, 1996). Furthermore, aid supports economic interests by facilitating private investment abroad, improving access to vital materials, expanding demand for domestic industry in the purpose to benefit poor countries to expand markets for goods and services of the industrialized countries. An example would be African Growth and Opportunity Act (AGOA) for trade and investment in African member countries, financed by United States of America. AGOA provides opportunities for businesses and contributes to growth of African economies through expanded and diversified trade through exporting from developed countries. Technical assistance and other support through trade capacity building programs are also provided. The last but not least reason for overseas aid can be based on International support for development in solidarity of all people or Nations to address common problems and pursue common aspiration for sustainable social development. An example may be combating epidemic diseases, like H1N1 Flue, HIV, Malaria or the concerted efforts by the member countries to try help a country come out of a...