economic aid

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economic aid

the provision of foreign exchange and other forms of assistance (e.g. skilled technicians and scientists, machinery and equipment) to, in the main, DEVELOPING COUNTRIES in order to accelerate their economic development programmes. Such assistance ‘tops up’ the domestic savings of recipient countries as well as providing techniques, expertise and managerial resources that would otherwise be unobtainable locally Official development assistance (ODA), on highly concessionary terms, is the principal form of capital transfer to the poorest countries. Official aid is extended by member countries of the Development Assistance Committee (DAC) of the ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD), on both a

bilateral (country to country) and multilateral basis through the DAC, the WORLD BANK, the EU European Development Fund and the European Investment Bank.

Multilateral aid tends to be earmarked for ‘big-ticket’ programmes, such as establishing a new industry in a recipient country building a dam or road network system and investments in healthcare and education. Bilateral aid may be provided on an open-ended basis, but much of it tends to be ‘tied’ to the supply of specified goods from companies located in the donor country as a means of boosting that country's exports. Aid may be provided ‘freely’, without interest charges or an obligation to repay; on a ‘soft loan’ basis - low interest charges and a long redemption period; or may be subject to more onerous commercial terms.

Although not officially classified as economic aid, inward foreign direct investment by MULTINATIONAL COMPANIES (see FOREIGN INVESTMENT) has been an important source of new capital and technological transfer for many developing countries. See INTERNATIONAL DEBT, ECONOMIC DEVELOPMENT.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
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