Overseas Development Aids’ Future
For a very long time the predicament of the poor nations has largely been blamed on the lack of capital to inject into investment on infrastructure that would stimulate economic activity. This according to Erixon (2005) has been blamed by supporters of ODA as the deterrent of investment. The argument has been largely advanced by proponents of aid to justify huge infrastructural expenditure on development projects. For example, between the years 1970 to 2000, the donor countries pumped $400 billion to African countries much of what came in development aid. The main debates about ODA have revolved around effectiveness of ODA as tool of development in the third world countries. Several schools of thoughts have emerged either in support or against the ODA.
The main Schools of thoughts on ODA
Those who subscribe to the proponents of ODA school of thought have advanced the Gap Theory to support it. The Gap theorists argue that the third world countries are trapped in a vicious cycle of poverty. As a result of poor incomes the poor cannot save which leads to inadequate capital that is necessary for investment. The low level of investment leads to poor productivity which by itself results to poor incomes and hence to poor savings. The theory has been summarized in the form of “you are poor because you are poor”. Thus the cycle has been seen to conspire with other factors to ensure that the poor nations remain within a cyclic ring of unending poverty. Development thus ought to be injected into these countries as a stimulus to the development process. The opponents feel that without it there will be slow utilization of natural resources to spur economic development.
On the other hand the opponents of ODA have argued that there is no single documented evidence to support that the savings/investment gap exist in practice as Erixon (2005) who happens to be one of them argues. He argues that the theory is essentially defective and that over the years foreign aid has only been counterproductive. According to him, it has been instrumental in discouraging private sector initiatives, undermined democratic rule and propping up dictatorial policies which has escalated poverty. This school of thought further argues that the core reason for poverty is not the lack of infrastructure but the lack of institutions of comprehensive property rights, rule of law, free markets and limited government. They argue that most of the poor countries exhibit high inability to own and transfer property due to slow judicial processes which are often expensive and ridden with corruption.
There is excess government control in these economies whose policies discourage engagement in viable economic services. More often than not, financial aid is fraudulently appropriated by the political leadership at the expense of the citizenry.
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