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Aid vs Trade Essay

The aid verses trade debate shows the strong difference and sizable reduction in severe poverty in emerging economies such as China, Thailand and South Korea that have embraced international trade, with the persistent poverty in many aid-dependent African countries. The debate of whether foreign aid is beneficial or harmful to a country in need can be seen as foreign aid directed to Africa has significantly grown yet this has not benefited the continent as it is still considered ‘developing’ and is in a state of widespread poverty (Alesina, Dollar, 2000). Asia, which was once also considered a third world country has developed a strong economy and infrastructure with not aid that, was introduced in Africa. Rather than seeing the two arguments as aid or trade, it should be seen as aid for trade. (Rotberg, 2009)

TRADE HAS A SIGNIFICANT LONG-TERM AFFECT ON THE DEVELOPING COUNTRIES ECONOMY; IT IS THE KEY TO DEVELOPMENT. IT ALLOWS THE COUNTRY TO DEVELOP STRONG TRADING RELATIONSHIPS WITH OTHER COUNTRIES, THUS ALLOWING A REGULAR FLOW OF FUNDS INTO THE DEVELOPING COUNTRY. TRADE IS NECESSARY AS IT ALLOWS THE COUNTRY TO USE ITS OWN NATURAL RESOURCES, WHICH NOT ONLY BENEFITS THEMSELVES BUT ALSO THE WORLD OF TRADE. AFRICA HAS BEEN GIVEN IN THE PAST 60 YEARS AT LEAST $1 TRILLION OF DEVELOPMENT-RELATED AID; EVEN WITH THIS HUGE INFLUX OF ECONOMY THE INCOME TODAY IS LOWER THAN IT WAS IN THE 1970S, AND MORE THAN 50% OF THE POPULATION LIVE ON LESS THAN ONE DOLLAR A DAY AND STILL REMAINS IN A MAJOR STATE OF POVERTY (MOYO, 2009)

Aid is beneficial for developing countries going through a period of unsteadiness and have gone through a major crisis e.g. natural disaster, this is when aid is most needed, as a country is left with nothing and needs initial funding to allow the country to start rebuilding and trading with outside countries. Aid accelerates the economy of underdeveloped countries but it is also given in the form of bilateral aid, multilateral aid, humanitarian emergency relief, NGO partnership support and Technical support and community involvement. Aid often has a positive effect in third world countries with good policies and has little or no effect when countries have poor policies. (Burnside and Dollar (2000)

Trade is a necessary tool in order to significantly develop and improve a third world countries economy and to reduce poverty. Trade is seen as difficult in these countries as there is sometimes a lack of information, institutions and infrastructure, which makes it difficult to efficiently trade globally. Advancing education, science and technology are important in order to help improve Africa’s development. In order to improve the many economical and poverty issues they’re confronted with, promoting this industrial development will help ensure long-term economic growth which will allow the continent to not be so aid dependant (Astier, 2006). Aid for trade increases the trade performance of developing countries; a small increase of 1 percent directed for trade, which is about $11.7 million, could generate amounts of up to $818 million (Helble, Mann, Wilson 2009)

There are various economic, social, and political factors that can cause countries to remain in a prolonged widespread poverty, almost half the world live on less than $2.50 a day (Shah, 2013). Some economical factors include the lack of improvement in agriculture, the faulty industrialisation, and unequal economic distribution. Social factors that cause countries to remain in this state are the strong religious aspects of a country. Politics is full of corruption and how many political leaders in such countries rather than have the countries best interest at heart would prefer to enhance their own wealth.

A prominent cause of poverty is the economic position of a country. A lot of countries lack advancements in agriculture, the absence of modern machinery, tools, facilities etc. result in the lack of development the current systems that are in place are often not sufficient and cannot provide for the local community. This can be seen in ineffective industrialisation, there is not enough finance in these countries to provide skilled and technically trained workers, thus is it difficult to provide employment. Another economical factor is the unequal distribution of wealth. Wealth is often distributed to a limited group of people, the wealth in such poor countries is often skewed e.g one is either extremely wealthy or extremely poor, thus leaving the majority of the country in a state of poverty and unemployment.

The social factors that contribute to countries with a high poverty level are mainly religious. In these countries material goods are not high in value. It is also evident that education in poverty-ridden countries is also not very highly valued; generally the emphasis is for young children to get a job to help the families’ income rather than get a better education and get a better job. Often there are socio religious aspects that also restrict advancements, such as marital agreements, putting these countries in a continual downward spiral into a worse state of poverty (Crabtree, 2010).

The political factors that lead a country to remain in poverty can come down to the leaders that are meant to ‘provide’ for the country are hugely responsible for the destruction and poverty of the country. Administration can be full of corruption and ineffectiveness, and rather than enrich the countries overall wealth they will enrich there own wealth at the cost of the countries development. As a result of this political inefficiency and dishonesty there has been no real advancements in countries where poverty is high, they are still in a strong downward spiral of poverty.corruption has to stop before the continent can ever develop (Morrissey, 1991).

The positive impact of aid and trade can be slow in some countries because of four factors physical capital, human capital, natural resources and the countries technological knowledge. The things that can be done to help these countries that are poverty stricken start with improving its level of productivity and growth as a country’s standard of living depends on its ability to produce goods and services (Shah, 2013). Nearly 21 percent of people in third world countries lived at or below $1.25 a day. With that measure based on latest data available, 1.4 billion people live on or below that line, meaning in 2010, 1.22 billion people lived on less than $1.25 a day. Almost half the world-over three billion people-live on less than $2.50 a day and at least 80% of humanity lives on less than $10 a day. (Okonjo-Iweala, 2007)

The physical capital of a country can be seen as its evolution, their production factory, their production process, and infrastructural development. In order for a country to improve, so must the stock of equipment and structures that are used to produced these goods and services (Sachs and Warner, 1999). Human capital is an essential part of the improvement of a country as human capital relates to the skills and knowledge that workers gain through various types of training, education and experiences, if the countries human capital in improved the nations ability to produce quality goods and services will increase accordingly. The development of infrastructure is needed in order to facilitate better medical, education, and working system. (Khumbah, Foote, 2014)

A countries natural resources, their land, water, mining, both renewable and non – renewable resources are very important for a countries economy, and can be highly productive in producing goods and services of a high quality, and rather than be abused by other countries it can allow the suffering countries to prosper (Kaufman, 2002). Technological knowledge is educating a countries most effective ways to produce goods and services. In order for a country to improve overall they need to understand new technology, there must be training and knowledge in order to decrease poverty.

One billion children live in poverty, six hundred and forty million don’t have sufficient shelter, four hundred million don’t have access to safe water, two hundred and seventy million have no access to health services and nearly eleven million died in 2003 before they reached the age of five (Shah, 2013). Poverty is a massive killer, although this as well as diseases and illnesses can easily be prevented, countries that do and do not suffer from poverty often don’t advertise the desperate need for change. (Rotberg, 2009)

Aid is not the cure for the developing world’s problems but it has been helpful in minimizing suffering and increasing development. Aid has helped improve the health, education and trade systems in developing countries. Economic growth and global trade are crucial to reduce poverty in the long term, but in order to continually reduce global poverty both trade and aid are fundamental.

References

Astier, H. (2006, 1st February). Can aid do more harm than good? Bbc

Khumbah, K., & Foote, M. (JULY 31, 2014). AFRICA NEEDS SCIENCE, NOT AID. Retrieved, 22nd august, 2014, Retrieved from http://www.nytimes.com/2014/08/01/opinion/africa-needs-science-not-aid.html?_r=0

Aid versus trade. Okonjo-Iweala, N. (Director). (2007, July).[Video/DVD] TEDGlobal.

Robert I. Rotberg. (2009). CHINA INTO AFRICA: TRADE, AID, AND INFLUENCE . Brookings Institution Press:

Shah, A. (2013, 24th March). Causes of poverty. Global Issues

Wilkinson, M., & McGregor, L. (2013). Preying on paradise

Burnside, C. and D. Dollar (1997), `Aid, Policies and Growth’, Policy Research WorkingPaper no. 1777, World Bank, forthcoming in the American Economic Review

What is Human Development?, Human Development Reports, United Nations Development Program

Sachs, Jeffrey and Andrew Warner (1999), “The Big Push, Natural Resource Booms and Growth”, Journal of Development Economics, 59, 43-76.

Human Development Report (HDR), United Nations Development Program, November 27, 2007,

Kaufmann D, Kraay A 2002 ‘Growth Without Governance’ Economia Fall 2002, Vol. 3, No. 1

Alberto Alesina and David Dollar (2000), “Who Gives Foreign Aid to Whom and Why?” Journal of Economic Growth (March), pp. 33-63

Morrissey O. _An Evaluation of the Economic Effects of Aid and Trade Provision. Journal of Economic Studies 1991;28:104-29._

Steve Crabtree (2010) Religiosity Highest in World’s Poorest Nations http://www.gallup.com/poll/142727/religiosity-highest-world-poorest-nations.aspx


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