International aid refers to assistance provided by one or multiple countries or organisations to another country, often with no expectation of direct repayment. It can be broadly categorised into short-term relief aid, aimed at addressing emergencies, and long-term development aid, focused on building infrastructure and capabilities. In some cases, donors impose conditions that require recipients to spend the aid money on products or services from the donor country, a practice known as tied aid. Generally, relief aid tends to have a more positive impact than development aid, while tied aid often diminishes the benefits of the assistance.
The Case for Relief Aid
Relief aid has proven to be essential in times of crises. Its effectiveness lies in its clear purpose: addressing immediate needs during emergencies. For example, relief aid is often directed towards providing equipment and resources to mitigate the impact of natural disasters, making it harder for governments to misuse funds. Since the primary goal is saving lives, governments are less likely to squander the money, as any mismanagement could result in devastating consequences for their citizens.
Relief aid also tends to produce benefits that outweigh its drawbacks, as it prioritises human lives. A notable example is the aid India provided to Nepal following the devastating 2015 earthquake, which registered a magnitude of 7.8. The disaster claimed approximately 9,000 lives and caused massive financial losses. While Nepal’s government was eager to send rescue teams, financial constraints limited its ability to respond effectively. India’s aid played a crucial role by funding temporary shelters, distributing food and other necessities, and financing rescue equipment like helicopters. Thousands of lives were saved, and the aid also facilitated rebuilding efforts in the aftermath of the destruction.
The Challenges of Development Aid
In contrast, the effectiveness of development aid is often limited. The goal of development aid is to improve infrastructure, such as transportation networks, or to enhance human capital through education and training. Ideally, these improvements would attract foreign direct investment (FDI) and foster entrepreneurship, leading to economic growth and poverty reduction. However, for development aid to succeed, certain conditions must be met, such as a stable government and a lawful market system.
Without stability and rule of law, investment is discouraged, as the future becomes uncertain, and trained workers may be unable to utilise their skills due to war or political persecution. For instance, during the era of the Republic of Zaire (now the Democratic Republic of Congo), the country was plagued by political corruption and economic instability. Dictatorship led to widespread violence, with citizens frequently murdered and companies forcibly transferred to the dictator’s family. Despite receiving significant aid from the United States and other high-income countries, much of the money was diverted to military spending or lost to corruption. Training programmes provided by the United Nations were also ineffective, as skilled workers were often subjected to forced labour, enriching the dictator’s wealth through diamond mining. By the end of this period, Congo was one of the least developed countries in the world, with fewer than 100 doctors, despite the substantial development aid it had received. Even after the dictatorship ended, the nation experienced two civil wars and ongoing conflict, leaving it with one of the poorest economies, worst infrastructures, and least skilled workforces globally. To this day, Congo relies heavily on exporting primary products, with limited foreign investment or entrepreneurial growth.
The Limitations of Development Aid in Stable Economies
Even in countries with stable and lawful systems, development aid does not always yield the best results. While it can assist with economic growth and infrastructure improvement, it often lacks the advantages of promoting international trade. One reason is that aid can foster complacency, as individuals may view it as a benefit that does not require effort, and firms may become less competitive, knowing losses or inefficiencies can be offset by external funding. This reliance on aid can make domestic industries dependent, leaving them vulnerable in international markets once the aid is withdrawn.
A clear example is the long-term development aid provided by the United States to Egypt. Due to the country’s weak domestic industry, Egypt had to either cooperate extensively with the donor, reducing its economic independence, or implement protectionist policies. In contrast, promoting international trade encourages firms to compete, innovate, and reduce costs. This is one reason why the Asian Tigers and China achieved significant growth—by attracting FDI, they enhanced domestic competition and efficiency.
The Harmful Effects of Tied Aid
A specific form of aid—tied aid—can be particularly harmful to recipient countries, as it often imposes economic or political pressures. Tied aid typically requires recipients to import goods or services from the donor, increasing economic dependency, or to align politically with the donor. A notable example is the Pergau Dam scandal in the 1990s. The United Kingdom provided aid to Malaysia to fund the construction of the Pergau Dam, but it required Malaysia to purchase equipment from British companies. Moreover, Malaysia agreed to buy British arms under political pressure, strengthening bilateral relations and aligning with the political agendas of British Prime Ministers Margaret Thatcher and John Major. While the dam provided short-term benefits, the arrangement was widely criticised for increasing Malaysia’s economic and political dependence on the UK.
About the Author
Zhenglin (Alex) Li is an independent researcher based in Yinghua Academy of Tianjin. His research area focuses on the financial market, pension reforms, the Chinese economy and trade liberalisation. He was one of the delegates of China in the United Nations Youth Training Program in 2023.
