Data Response M4.6

Asian countries fear drop in aid funding from Japan

1. Distinguish between foreign aid and foreign direct investment.

Foreign aid involves official aid and unofficial aid. Official foreign aid is when the aid is administered by the government or government agencies, also called an official development assistance (ODA). Unofficial aid is when it is administered by a non-government body, such as a charity – so called a non-governmental organizations (NGOs). So foreign aid is aid in the form of loans or grants that are administered to a country to allow for further development.  On the other hand, foreign direct investment is an investment abroad, usually where the company being invested in is controlled by the foreign corporation.

2. Explain why the earthquake and tsunami in Japan is likely to affect Japan’s capacity to donate foreign aid.

Japan is not only a regional economic powerhouse and the world’s third-largest economy, but it is also the fifth largest donor of development aid. This aid, however, is likely to be affected because of the earthquake and tsunami because, as the president of the Philippines’ senate says, “they will be using their own money for reconstruction”. So Japan will have to put more money into the recovery of their own country, so they will not have enough money to aid other developing countries.

3. Explain how reductions in Japanese foreign aid might affect the economic development of the recipient nations.

Reductions in Japanese foreign aid will affect the economic development of the recipient nations negatively. This is because as stated before, now that Japan needs to focus more on their recovery of the country, they will not have enough money to aid to other countries. Therefore,

4. Evaluate the arguments for and against foreign aid.

The arguments for foreign aid are many. One of them is that foreign aid enables infrastructure changes to be made to the economy, which contributes to economic growth. Not only are there economic reasons, but sometimes foreign aid is seen as being necessary in order to maintain power. There exists foreign aid in the form of military goods provides the power base that suppresses opposition and maintains the existing government in power. In addition, people within the developing countries and the developed countries consider that the developed countries have a moral responsibility to provide development assistance for the poorer countries.

Arguments against foreign aid would provide funding for production that the private sector might have invested in for commercial reasons. Because NGOs give out a particularly small amount of microcredit loans, it could have been undertaken by commercial banks that might have operated this service on a more commercial and profitable basis, which could create a welfare dependency. In addition, foreign aid may fall into the hands of corrupt officials which will serve the purpose of propping up existing corrupt regimes. Furthermore, dependency theory argues that aid ensures the continuation for the developing countries on the periphery and the dominance of the more developed countries (MDCs) in the core. Developing countries need to build and develop from within their own capabilities rather than relying on transfers of funds from the MDCs.

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One Response to Data Response M4.6

  1. Mr. Nguyen says:

    #4 is an adequate answer. What are the benefits and costs for nations who give aid?

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