Foreign Aid Importance

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Importance of Foreign aid in export diversification Foreign aid is generally defined as the universal transfer of goods, services and capital from the international organization or donor country to the receiver country with the objective to benefit the inhabitants of the country. The international aid has its origin in 1944 Brettonwoods conference that has led to the foundation of international institutions for promoting international trade and financial support to the countries which were devastated in the World war. The major institutions of international aid are International bank for Reconstruction and Development (IBRD) and International Monetary Fund (IMF). The IBRD provided long term loans for reconstructions of the infrastructures …show more content…

Few studies believe that Asian countries are largely benefitted by the foreign aid for economic growth and development. On the contrary, other argues that foreign aid inflows have a negative impact on the growth of Asian countries. According to Morrissey (2001), foreign aid can only contribute to economic growth through a number of mechanisms. He said that foreign aid can increase the capacity of import of technology or capital goods and can increase investment in human capital and physical goods. Further, it indirectly encourages investment or saving rates by promoting technical change and increases productivity of capital. However, despite of transfer of foreign aid since decades in developing countries, the objective of increase in social welfare and economic development remains …show more content…

However before that, in India, during 1960s there was 8% share of foreign aid to GDP hat has increased to 10% in 1965Since that, the flow of foreign aid has declined in India and in 2011 it was 0.5% of the GDP.O the other hand, in Srilanka, the share of foreign aid to GDP was 2.5% in 1960s and increased further to 15% in 1979 but after that it has started decreasing and in 2011 it was 2%( Bhavan et al.2011) Sri Lanka is one of those countries where foreign aid has led to economic development through financing of infrastructural projects in large scale and social development projects on education and health. Further aid has helped in financing capital intensive government expenditure of Srilanka and supported the reconstruction activities of tsunami. The major sources of foreign aid in Srilanka are Asian Development banks (ADB), World Bank and

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