CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The concept of international aid or foreign aid, or Official Development Assistance (ODA) is widely used and accepted as a flow of financial resources from developed countries to developing countries on development ground (Todaro, 1989)1. To Uzonwanne Maria (2015), the term “foreign aid” implies a number of varied activities, ranging from humanitarian support in the wake of natural disasters to military assistance and arms donations.  It is a voluntary transfer of resources from one country to another.

Over the past fifty years, foreign aid has emerged as a dominant strategy for alleviating poverty in the third world.  Not coincidentally, during this period major international institutions, such as the United Nations (UN), International Bank for Reconstruction and Development (IBRD), and International Monetary Fund (IMF) gained prominence in global economic affairs (Hjeertholm and White, 2003). The less developed countries (LDCs) of the world continue to suffer from economic hardship, prompting questions of whether foreign aid is a worthwhile and effective approach to boosting growth and development in recipient economies.  Then how does foreign aid affect economic growth and development in recipient countries? This is a question that has attracted intense debate among scholars.

Pedersen (1996), argues that it is not possible to conclude that foreign aid has a positive impact on growth. Morrisey (2001) claimed that aid works well conditional on other variables in the growth regression. Mosley (1980), Mosley et al (1987), Boone (1996), and Jensen and Paldam (2003) found evidence to suggest that aid has no impact on economic growth and development. Many other authors find no evidence that aid affects growth in developing countries. However, the relation between aid and economic development remains inconclusive and is worth being studied further.

The history of foreign aids dates back to international actions that followed the Second World War. Indeed, several institutions have evolved from organizations originally created to contribute to post-war reconstruction. The development work of the UN began with the United Nations Relief and Rehabilitation Agency (UNRRA) founded during the war, and the International Bank for Reconstruction and Development (IBRD), which provided loans for recovering western European nations, making its first loan to a developing country only in 1950 to (Colombia).

The final post-war manifestation of importance was the Marshall plan, whose success was seen as a model for development elsewhere, and whose approach was reaffirmed in the donor coordinated effort of the Colombo Plan for South and South-Eastern Asia.  A final feature of the post-war international scene of importance was the first wave of independence from colonial rule, creating a constituency for aid. The first meeting of the non-aligned movement in 1965 gave a focus to this voice, as did the various organs of the UN, notably UNCTAD.

Despite the existence of multilateral programmes, bilateral technical assistance to independent countries and even the emergence of the Soviet aid programme in 1956, the 1950s may be described as a decade of US hegemony in aid distribution, as it alone accounted for two-thirds of total aid in that decade (The Guardian.com,2014). . Although the programme was subject to continued commercial pressures (especially in the use of food aid), the intensification of the cold war gave U.S aid a strongly strategic orientation, which it has retained to this day. International aid was quite consciously used to stop “countries going communist”, and development aid as well as military aid mixed as necessary. In the 1960s, the second wave of independent states and the troubled financial state of some already independent countries (notably India) prompted the emergence of greater amounts of bilateral  programmes.

By 1969, the aid system grew and its channels multiplied and became tangled. There was unnecessary duplication in economic reporting and feasibility studies.  Inadequacies of coordination implied a lack of purpose and direction in development assistance. To remedy these deficiencies, the Pearson Commission advocated many changes, among them the strengthening of multilateral agencies. The major multilateral development agencies have grown in number and size over the past fifty years.

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