Economics(Paper-4) - Shivaji University

) United aid
a) Tied Aid :
Tied aid may be by source, project or commodities. Tied aid by source is given by
developed countries such as U.S. Government Assistance under PL. 480 and Exime
Bank loans, Aid given by U.S.A. should be spent by receipient country to purchase
U.S.A. goods and services only.
Aid tied by project is that aid under which aid must be used for specific development
project like construction of dam, hospital, bridges, roads etc.
Tied commodity aid is that aid which is given to purchase specific commodities
such as food grains, machinery, spareparts raw materials etc. Here, receipient country
are requried to purchase commodities from donar country at higher cost.
b) Untied Aid :
When a donar country gives aid to receipient country without any condition. Here,
such kind of aid is useful to the receipent country because it may use aid freely be
keeping in-view its plan requirements.
B Role of Foreign Capital and Foreign Aid in Economic Development :
Foreign Capital and Foreign Aid plays an important role in the economic
development of both developed and developing countries. Now a days foreign capital
has becoming essential condition to have growth either in developing and developed
country. Let us see how its role is creating an impact on economic development.
1) Use of Human and Natural Resources :
Under developed countries are suffering from excessive pressure of population
on land and exist of disguised unemployment on large scale. But, natural resources
are available in huge way. It is the job of the economy to utilize both natural as well as
human resource and this could be possible only through either foreign capital or aid.
2) Improvement in Technology :
Generally, technological backwardness is the well know feature of developing
countries. This has retarded the development process of an economy. Hence, through
foreign capital and aid they can have technical assistance in the forms of research,
training, expert services, etc. to built-up strong industrialization. Thus, with foreign
collaboration, developing countries can a higher economic development.
3) Filling up resource gap :
The resources which are available in under developed countries are extremely
low due to low savings, low investment and vicious circle of poverty. Here, foreign
capital and foreign aid is the only way to bridge the gap between the low domestic
savings and the huge investment required for rapid economic development.
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