What is better trade vs aid?
For developing nations a little bit of both is needed but
Let us assume the country in need is X
Trade is better because trade will help the economy of X in many
different ways, trade will increase the exports of X which will in
turn help create jobs and these jobs will generate and income.
Eventually part of these incomes will be saved and domestic
investment will rise leading to growth (repeats its self) . Other
than the living standards of the people of X increasing the firms
in X will also gain experience and become more efficiant and will
grow, this will create political stability as well.
Aid on the other hand is usefull, aid in the form of capital or
funds to create infarstructure in donor nations are very helpfull
indeed. However, It can create high levels of inflation (if the aid
is used to fund the current account budget deffict)it can cause the
nations to become heavily dependent on foreign aid, aid does not
create a sustainable growth or development (the country may be able
to spend on development only as long as the aid comes in.)it will
also depress the prices in the domestic market of X ( large amounts
of aid will bring prices down in X and this will cause further
problems) Aid will also bring about social problems like general
idleness. Tied aid (aid with certain conditions ) will limit the
sovergnity of nations like X and could cause resentment.
Most developing nations like X don't have the necessary funds to
build good infarstructure thus aid could help create the
infarstructure necessary to build up the economy and from there
onwards through trade donor nations can open up their markets for
imports from X which will help it further in terms of developing an
export market (firms capable of competing in the international
market) and diversification of the economy, achiving growth and
development. It is said that if rich nations opened up their
economies to poorer nations they could drastically cut down on the
aid necessary to help them.