Economics
Bachelor of Commerce (BCom)
The Difference Between

What is better trade vs aid?

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2011-09-13 14:58:54

For developing nations a little bit of both is needed but

especially trade.

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.


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