Abstract
While foreign aid is generally motivated by respected incentive which is to redistribute income globally, especially among the least developing countries (LDCs), as well as to simulate global growth and stabilization, the arguments for and against aid have been very unsettling among social scientists. It is out of the scope and limitation of this paper to thoroughly present two sides of the debate mostly started ever since Chenery and Strout invented the infamous and controversial two-gap model in 1966. Thus, the paper will mostly look at the skeptic perspective of aid within the macroeconomic framework setting aside issues related to institution and morality.Here is the draft for the paper. While at this topic, the president of Rwanda, Paul Kagame, published an opinion on the Financial Times regarding the aid culture in his country two days ago under the title "Africa has to find its own road to prosperity." President Kagame makes a similar argument: "...the rich world and multilateral institutions have a heart for the poor. But they also need to have a mind for the poor." How delightful to read a view from an aid receiver himself.
Structurally, the paper starts by introducing Chenery and Strout’s two-gap model. Next, it presents the on-going disputes against this model arguing that the giving of aid could be counter-productive due to the effects of aid tying, domestic saving displacement and Dutch disease. The paper further advances into the contention by addressing the potential hazardous effects of the Monterrey Consensus and the Doubling of Aid due to diminishing returns, speculative attacks, which may eventually lead LDCs to a currency crisis. It is in this the author opinion that international aid must involve in a more effective and accountable form of assistance instead of devising more dependency from poor countries. International agencies and donor community must make provision for improving the quality of aid before increasing the quantity of aid.
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