International Donors and the Aid Business: Analyzing Donor and Recipient Aid Strategies

Abstract

The recent debate on international aid is how to use aid to impact the development outcome. Making aid more effective in promoting the economic growth and reducing poverty. The main objective of this study is to examine the impact of foreign aid. Our interest in focusing on Africa is twofold. First, consistent with Asongu (2015a), while South East Asian and Latin American countries have been experiencing decreasing levels of inequality, that of Africa has been increasing. Second, in light of a recent World Bank report on attainment of the Millennium Development Goals (MDGs), while extreme poverty has decreased in all regions of the World, it has been increasing in Africa. According to the report, about 45 percent of nations in Sub-Saharan Africa (SSA) are still off-track from achieving the Millennium Development extreme poverty target (Caulderwood, 2015; Asongu & Kodila-Tedika, 2015). We posit that aid effectiveness is not the failure of donors but mostly recipient inability to use aid effectively. If aid is well organized, manage and appropriately used it could directly lead to economic development. We introduce the case study, Zambia a least developed African country whose per capita income levels, had the aid model been correct, had the potential to reach $20,000; yet, despite structural adjustment lending and millions of dollars, Zambia’s per capita income level in 1990s hovered around a mere $500. Aid effectiveness will rest in increased economic liberalization, the development of institutions, and the improvement of economic and political environment.

Keywords:：Africa, Aid strategy, Foreign aid, International donors, recipients, Zambia