The Impact of Foreign Aid in Latin America

By Sanchez, Omar | The Journal of Social, Political, and Economic Studies, Spring 2002 | Go to article overview
Save to active project

The Impact of Foreign Aid in Latin America

Sanchez, Omar, The Journal of Social, Political, and Economic Studies

The economic impact of foreign aid flows to Latin America (from 1974 to 1993) is examined empirically. Regressions are run to determine whether aid is invested or consumed and whether the consumption of foreign aid is reflected in indicators of human development (infant mortality, secondary school enrollment and life expectancy). However, no relationship is found between aid and improvements in human capital indicators. It is concluded that if continued aid to Latin America is to have a measurable economic impact a policy of selectivity (in the disbursement of aid) should be adopted. The merits of such a policy were recently acknowledged by the World Bank.

Key Words: Latin America, foreign aid, human development, infant mortality, life expectancy, World Bank.

Simply stated, foreign aid is an international transfer of capital, goods, or services for the benefit of other nations and their citizens. Whether foreign aid should be called a new phenomenon or not depends on one's point of view. In the history of diplomacy, subsidies and tributes have been common, and wartime aid among allies was already given by Britain during the eighteenth century and the Napoleonic wars, but peace-time economic aid among governments is novel. Generally speaking, the West has been involved in the economic development of the rest of the world since the time of the Discoveries. Yet, the use of public funds for the specific purpose of promoting and assisting in the economic development of other sovereign countries has no significant precedent before the Marshall plan. In the early days economic assistance moved a few hundred million dollars. Today, foreign aid is an industry of well over $50 billion a year.

Economic aid in its present form exists, allegedly, because there are great disparities of wealth between countries. But there is no general agreement that the primary objective of aid is the development of poor countries, and in some cases aid programs are supported on the grounds that they further the political and/or economic interests of the aid-- granting countries or groups within these countries

One apparently simple reason for giving aid is promotion of export industries within an Aid-granting country. Developing countries sometimes appear to believe that this is the only reason. It is claimed that aid tied to exports introduces the country's products into new areas and opens new markets. It is sometimes argued that in the long run the prosperity of the rich and the poor countries is linked; that the development of the former depends on the expansion of the markets and production of the latter, and that this can be achieved by giving aid for the development of poor countries. Needless to say, there are important limitations to this line of thought. An increasingly prosperous Third World is obviously in the material interests of the rich nations, but first it needs to be scientifically ascertained that aid contributes to economic and social welfare, rather than merely asserted. As a spokesman for the Overseas Development Institute points out, "clearly the rich countries will benefit to some extent by an increase in the prosperity of the countries which are now poor, but to go on form there to argue that the rich countries, if they are concerned solely with their own prosperity, can promote their interests better by spending money on developing poor countries than by spending it in other ways, seems excessive (OECD, 102)."

The political objectives of aid may also be unconnected with the development of poor countries. Arguments for supporting aid on political grounds are often highly sophisticated. They involve linking of political objectives of donors with the economic development of recipients. Nonetheless, with the closure of the Cold War era the essence of these arguments has less obvious, although politics continues a powerful force in determining who gets aid. Alesina and Dollar (1998) find overwhelming statistical evidence that political and strategic alliances remain important in explaining the distribution of foreign aid across countries.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

The Impact of Foreign Aid in Latin America


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?