Trade vs Aid

Since the 1940s efforts to create development in the poorer countries of the world have centred around two approaches:

 

Ø  The use of trade to promote economic growth.

Ø  The provision of aid by developed countries (and latterly oil-rich states).

 

Defining the terms: Trade is the business of buying and selling commodities; commerce in this case between less developed countries and more economically developed ones. Aid is help that comes from more wealthy nations or organisations. There are different forms of aid. Bilateral aid is money given directly to a countries government. Multilateral aid is money given to organisations such as the IMF, the World Bank and UNICEF who then redistribute it to those most in need. Non-governmental organisations also distribute aid through charities such as Oxfam.

 

There are several positives of trade. It provides a basis for developing countries own improvement for example governance, currency stability and international security. If developing countries relaxed barriers between themselves they could all be more prosperous. Trade encourages development as people compete on a global scale. To be part of some trade blocks certain criteria have to be met e.g. human rights, corruption and many other preconditions to trade. The ‘Multiplier Effect’ whereby trade makes its way makes its way through the whole economy is seen as a huge positive.

 

There are also negative aspects of trade to consider. There are barriers to trade e.g. trade blocks imposing tariffs, taxes, subsidies and regulations. Developing countries base their economies on ‘cash crops’ and therefore if the global price goes down or competition increases then the countries income through trade will be reduced. It is also very hard for developing countries to compete with the EU and USA as they have no economic power. Trade also relies on a good infrastructure e.g. roads, railways, ports and skilled civilians. These do not exist in developing countries and therefore aid is needed to initially improve infrastructure. Trade is not an option for countries that simply do not have the resources or materials to trade with and so these countries cannot get themselves out of trouble without aid.

 

Aid comes in several forms and may not necessarily be money but goods or technical assistance. Aid can be allocated to those in greatest need with money going to specific groups e.g. churches, health centres etc. Aid is often seen as the answer to problems but it is hard to solve large scale problems quickly. Aid can be seen as embarrassing for the country that receives it and they do not feel they can act on international issues as their view may appear to be bought. Countries may also become reliant on aid from the perceived endless wealth of the west. This often encourages migration to the origin of the aid as the country must be rich and prosperous for all – this is not the case as there is poverty in all countries. Aid is not guaranteed, in times of economic hardship, aid may be reduced and this has negative effects on the recipient country. Aid may often be donated with ‘strings attached’ (tied aid) whereby the recipient has to agree to conditions (often relating to spending the aid).   

 

Globalisation encourages trade between countries but it is often the least developed nations that pay the largest penalties. Aid provided for natural disaster is one thing but many poor nations are in an unstable economic position because of exploitation by MEDCs. Trade is often in favour of MEDCs and therefore the rich get richer.  The economics of a capitalist global society mean that it is impossible for everyone to be equally wealthy.