An Assignment on: Foreign Aid and Economic Development

Course Title: Development Economics

Course Code: Econ 205

Submitted To
Ayesha Siddika
Professor, Department of Economics
Jahangirnagar University

Submitted By
Israt Jahan Sraboni- 461
Sayma Akter Nisha- 468
Suraya Yasmin- 480
Md Meraj Islam- 510
Ahad Rahman Shuvo- 505
Umme Rokeya Amy- 464
Maruf Hosen Daulat- 517
Ferdous Bin Sajid- 522
Rifa Tasfia- 2182
Department of Economics (50th Batch)
Jahangirnagar University, Savar, Dhaka-1342
Submission Date: 05 June, 2023
What is Foreign Aid?

The voluntary movement of capital from one country to another.

Like money, goods like food, drugs, weapons, or technical services, and training from foreign aid or
international aid refers to the voluntary transfer of resources a developed country to a developing one
in the form of a loan. Governments or international or non-governmental organizations provide it to
address issues like terrorism, environmental degradation, pandemics, etc.

A developing nation typically lacks a strong manufacturing base and is distinguished by a low value of
the Human Development Index (HDI). Foreign aid may be offered as a contribution or a loan, which
can either be a hard or soft loan. If the loan is in a foreign currency, it is termed as a hard loan.

Developed nations may provide developing nations with foreign aid after a natural disaster, times of
conflict, or during an economic crisis.
Governments may issue aid in the form of: money, food and supplies, medical assistance including
doctors and supplies, Humanitarian aid such as relief workers, Training services including agricultural
training, Health care, Education, Assistance with infrastructure building, Activities related to peace
building.

In summary we can say that

• Foreign aid is the voluntary movement of resources from one country to another.
• Foreign aid may require the transfer of professional advice and training, commodities, or
financial resources.
• The assistance can be used to advance the political aims of a government, allowing it to
obtain diplomatic recognition.

Sources of Foreign Aid:

The provision of commodities, money, or services by wealthier nations to citizens of underdeveloped

nations is known as foreign aid. It could come in the form of financial aid from the government, military
aid, or humanitarian aid. Billions of dollars are spent on foreign aid each year, but where does it come
from? What sources of foreign aid enable wealthy nations to offer such a large amount of assistance?
There are some sources that provide foreign aid to developing countries:
• National Governments
• International Organizations
• Intergovernmental Organizations
• Public Donations
• Private Companies
• Philanthropic Foundations

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National Governments:

National governments are one of the biggest providers of foreign aid. Many governments of wealthier
nations set aside a predetermined portion of their income for foreign aid. Governments use the tax
funds they collect to pay for foreign aid.

National governments are the most significant organizations in the aid sector as a source of foreign aid.
National governments are the source of billions of dollars in aid funding each year.

Government-provided aid for other countries is applied in many ways. Direct assistance from national
governments to the governments of developing nations is known as bilateral aid. Through their donor
agencies, national governments can also distribute overseas help.

Most countries in the developing world have a government department that provides funds to non-
government organizations (NGO) and UN agencies.

Examples of foreign aid departments include:

• US Aid
• UK Foreign Commonwealth and Development Office
• Swedish International Development Agency
• French Crisis Centre
• Global Affairs Canada
• German Federal Foreign Office

International Organizations:

International organizations are another source of foreign aid.

Global organizations that work around the world are known as international organizations. These kinds
of organizations frequently consist of member nations and are financed through levy payments made
by those governments.

International organizations include

• United Nations
• World Bank
• International Monetary Fund (IMF)
• World Trade Organization
• World Economic Forum

International organizations that serve as sources of foreign aid, such as intergovernmental organizations
and national governments, frequently split donations between funds given directly to developing

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country governments and those provided to NGOs. International organizations like the United Nations
substantially aid many large international NGOs.

Intergovernmental Organizations:

Intergovernmental organizations are a key source of foreign aid. Intergovernmental organizations are
international groups composed of independent governments. Treaties between nations help shape them.
They frequently work to coordinate international diplomacy on behalf of member nations, establish
norms and laws for member governments, and pool resources from many different nations. Foreign aid
is a key part of the activities of many intergovernmental organizations. They get their money from the
fee imposed on member governments for their aid donations. Intergovernmental bodies pool member
contributions to finance foreign aid and manage a common aid strategy on their behalf.

The scale of foreign aid funds intergovernmental organizations can provide is a major reason why they
are an important source of foreign aid.

Examples of some intergovernmental organizations that are sources of foreign aid are:

• European Union
• African Union
• ASEAN
• Union of South American Nations

Intergovernmental organizations provide funds to international organizations such as the United

Nations and NGOs. Many UN agencies and large international organizations source large parts of their
funding from intergovernmental organizations.

Public Donations:

Public donations in the context of foreign aid refer to financial contributions made by individuals to
organizations that provide aid abroad. Many NGOs rely on public donations for funding. They
accomplish this by holding events, campaigns, and businesses that accept donations of products.

NGOs use this money to pay for their international humanitarian efforts. For many non-profit
organizations, public donations are a vital source of funding for foreign aid.

When major crises occur, NGOs will run campaigns to raise funds from the public. In some countries,
there are organizations that manage these campaigns and pool funds between member NGOs. This
reduces competition and improves the coordination of fund-raising campaigns. Organizations such as
the Disaster Emergency Committee (DEC) in the UK and Alliance Urgences in France are examples
of this.

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Private Companies:
Large private companies frequently give a portion of their income to charity. Many people donate
money to and support international organizations like NGOs and UN agencies. This is a direct source
of international aid because these organizations frequently help people who have suffered from poverty,
conflicts, or natural catastrophes using the funds they receive from companies.
By providing financing for international aid efforts, private businesses serve as a source of foreign aid.
They are able to donate foreign aid because of the funds that they raise through their business
operations.
Examples of some private businesses that are sources of foreign aid include:
• Unilever
• Google
• Visa
• Deloitte
• GlaxoSmithKline
• Arsenal Football Club

Philanthropic Foundations:

Philanthropic organizations are another source of foreign aid. Philanthropic foundations aim to raise
funds to provide aid to NGOs and charities as a source of foreign aid. Their primary goal is to serve as
a body for fundraising. As a result, charitable foundations are a significant source of foreign aid.

Some of the most important philanthropic foundations that are sources of foreign aid are:

• Wellcome Trust
• Bill and Malinda Gates Foundation
• Open Society Foundation
• Novo Nordisk Foundation
• Stichting INGKA Foundation

Many philanthropic foundations raise funds for a particular cause. There are many focused on
international development issues and assisting people around the world living in poverty or affected by
crises. These philanthropic foundations are major sources of foreign aid.

Many advancements, especially in the areas of medicine, climate change, and agriculture, have come
about because of funding from philanthropic foundations.

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Overview of Foreign Aid in Bangladesh

Foreign aid plays a crucial role in Bangladesh's development efforts, particularly in addressing its
socioeconomic challenges and promoting sustainable growth. Bangladesh has been a recipient of
significant foreign aid from various bilateral and multilateral sources. Here's an overview of foreign
aid in Bangladesh:

Poverty Alleviation
Bangladesh has made substantial progress in reducing poverty levels over the years, with foreign aid
contributing to poverty alleviation initiatives. Aid programs often focus on improving access to basic
services, including healthcare, education, and clean water, targeting vulnerable populations and
marginalized communities.

Infrastructure Development
Foreign aid has played a vital role in the development of infrastructure in Bangladesh. Projects funded
by foreign aid include the construction of roads, bridges, ports, airports, and power plants. These
initiatives aim to enhance connectivity, facilitate trade, and stimulate economic growth.
Agriculture and Rural Development
Bangladesh is an agrarian country, and foreign aid has supported initiatives in the agricultural sector.
Aid programs often focus on improving agricultural productivity, promoting sustainable farming
practices, enhancing irrigation systems, and providing technical assistance to farmers. These efforts
aim to enhance food security, reduce rural poverty, and boost rural economies.
Health and Education
Foreign aid has contributed to the improvement of healthcare and education systems in Bangladesh.
Aid programs support the construction of healthcare facilities, training of healthcare professionals,
provision of medical supplies, and the development of educational institutions. These initiatives aim to
improve access to quality healthcare and education, particularly in underserved areas.
Climate Change and Disaster Management
Bangladesh is highly vulnerable to climate change and natural disasters. Foreign aid plays a crucial
role in supporting climate change adaptation and mitigation efforts, as well as disaster management
initiatives. Aid programs focus on developing early warning systems, implementing disaster risk
reduction strategies, and promoting climate-resilient infrastructure and agricultural practices.
Governance and Institutional Development
Foreign aid supports governance and institutional development in Bangladesh. This includes
strengthening public administration, promoting transparency, accountability, and the rule of law, and

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improving the capacity of government institutions. Aid programs also target areas such as human rights,
gender equality, and democratic governance.
Bangladesh has received foreign aid from various sources, including bilateral partners such as the
United States, United Kingdom, Japan, China, and multilateral institutions like the World Bank, Asian
Development Bank, United Nations agencies, and regional development banks. The aid is typically
provided in the form of grants, loans, technical assistance, and capacity building support.

It's important to note that the specific focus and allocation of foreign aid in Bangladesh may vary over
time, depending on the country's development priorities, emerging challenges, and the evolving
strategies of donor countries and organizations.
Foreign aid has played a significant role in Bangladesh's development since its independence in 1971.
From 1972 to 2023, the country has received substantial assistance from various bilateral and
multilateral sources to address its economic, social, and infrastructure challenges. Here is an
overview of foreign aid in Bangladesh during this period:

1970s:
• In the early years after independence, Bangladesh faced severe challenges due to the
aftermath of the war and natural disasters. Foreign aid primarily focused on relief and
reconstruction efforts.
• International donors, including countries like the United States, United Kingdom, and Japan,
provided assistance for emergency relief, food aid, and infrastructure rebuilding.
1980s:
• During this decade, foreign aid to Bangladesh expanded, emphasizing long-term development
projects.
• The World Bank and the International Monetary Fund (IMF) became key sources of funding,
supporting infrastructure development, agriculture, education, and poverty reduction
programs.
• Bilateral aid increased from countries like the United States, Japan, and the United Kingdom,
supporting sectors such as health, education, and governance.
1990s:
• In the 1990s, foreign aid continued to support poverty reduction and infrastructure
development, focusing on sectors such as education, health, agriculture, and rural
development.
• Donors increasingly emphasized social development, governance, and human rights, along
with economic growth.
• Bangladesh also started receiving aid from new sources, including emerging donors like
China and India.

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2000s:
• Foreign aid to Bangladesh during this period focused on achieving the Millennium
Development Goals (MDGs) set by the United Nations.
• Donors emphasized poverty reduction, education, healthcare, gender equality, and
environmental sustainability.
• The World Bank, Asian Development Bank (ADB), and bilateral donors continued to be
significant sources of funding, while new donors such as the European Union and the Islamic
Development Bank also increased their support.
2010s:
• During this decade, Bangladesh experienced steady economic growth, leading to a shift in
foreign aid dynamics.
• Donors focused on inclusive and sustainable development, climate change adaptation, disaster
management, and private sector engagement.
• The government of Bangladesh also prioritized infrastructure development, attracting
investment and assistance from countries like China, Japan, and India.
• The United Nations and international organizations collaborated with Bangladesh to
implement Sustainable Development Goals (SDGs).
2020s (until 2023):
• The COVID-19 pandemic significantly impacted Bangladesh, leading to increased
international assistance for healthcare, economic recovery, and social protection.
• Donors supported vaccination campaigns, healthcare infrastructure, and economic stimulus
measures.
• Climate change adaptation and resilience-building efforts gained prominence, given
Bangladesh's vulnerability to natural disasters and rising sea levels.
• Bilateral aid, especially from China, continued to grow, supporting infrastructure projects
such as roads, bridges, and power plants.
It's important to note that the specific amounts of foreign aid received by Bangladesh during this
period can vary, and the country has made progress in reducing its reliance on aid by focusing on
economic growth and domestic resource mobilization.

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Aid that Bangladesh receive

Foreign aid refers to any type of assistance that a country or organization receives in the form of gift,
grant or loan.
The various types of foreign aid Bangladesh receive are loans, grants, bilateral aid, multilateral aid,
food aid, commodity aid, project aid.
Loans
Loan refers to lending money to a country by different countries and international organization.
Bangladesh is very much dependent on the loans of other countries.
For example, Bangladesh and Russia have struck a preliminary agreement to make loan payments for
the $12.35 billion Ruppur nuclear power plant in Yuan.
Grants
Grants refer to money coming from a central or state government for a specific project. Bangladesh is
the recipient of a sizable number of grants from different nations and international organizations.
For example, USAID has provided grants to Bangladesh for developing agriculture, education,
healthcare sector.
Bilateral aid
This is direct county to county aid on the basis of clear cut and written agreement. The source of this
aid is one county and agreement is done between donor and recipient.
For example, Bangladesh government makes treaty with China government. Here China is Bilateral
donor. Bilateral agencies are USAID, DANIDA, CIDA.
Multilateral aid
This consists of aid channeled through an international agency like World Bank. Many countries
involve here. These countries provide aid to the recipient with some condition through different
international agencies like WB, IMF, ADB, OPEC, OCED, EEC etc.
Food aid
Food Aid is the supply of food from the donor countries and organizations or payment to suppliers of
food to Bangladesh by them. It is given by the donors to the recipient countries in their crisis situation
like flood, disaster, cyclone etc.
Commodity aid
Donor countries agencies are based on their circumstantial need. These commodities are the surplus
of donor countries, food, rice, wheat, medicine etc. given as commodities.

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Project aid
project aid is a type of foreign aid that is directed towards specific development projects in recipient
countries, with the aim of achieving specific development objectives. In Bangladesh project aid
relates to a large extent to the financing of projects which are included in the Annual
Development Program (ADP).

Poverty reduction and Income inequality in foreign aid

Poverty reduction and income inequality are two interconnected challenges that are often addressed
in the context of foreign aid. Let's break down each concept and explain how they relate to foreign
aid efforts.
Poverty Reduction
Poverty reduction refers to the efforts made to alleviate or eliminate poverty in a given population or
country. Poverty is typically characterized by the lack of basic necessities, such as food, clean water,
healthcare, education, and shelter. Foreign aid plays a crucial role in poverty reduction by providing
financial resources, technical assistance, and other forms of support to countries in need. This
assistance aims to address the root causes of poverty and improve the living conditions of the
impoverished population.
Foreign aid for poverty reduction can take various forms, including:
Economic development programs
Aid can be used to support economic growth and create sustainable livelihoods. This may involve
investments in infrastructure, agriculture, industry, and small businesses to stimulate economic
activity and generate employment opportunities.
Social programs
Aid can be channeled into social sectors such as education, healthcare, and social protection. This
helps provide access to quality education, healthcare services, and social safety nets for the poor and
vulnerable populations.
Capacity building
Aid can be used to strengthen the institutional capacity of governments and local organizations to
effectively implement poverty reduction strategies. This may involve training programs, technical
assistance, and knowledge sharing to improve governance, policy formulation, and service delivery.
Income Inequality
Income inequality refers to the unequal distribution of income among individuals or households
within a society or between different countries. It is often measured using indicators such as the Gini
coefficient, which quantifies the degree of income concentration. High levels of income inequality
can hinder poverty reduction efforts and lead to social and economic instability.

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Foreign aid can help address income inequality in several ways:
Targeted interventions
Aid can be directed towards marginalized communities and vulnerable groups to ensure they have
equal access to essential services, resources, and opportunities. This can include programs that focus
on improving education, healthcare, and job training for disadvantaged populations.
Pro-poor policies
Aid can support governments in implementing policies that promote inclusive growth and equitable
distribution of resources. This may involve reforms in taxation, social welfare, and labor markets to
reduce income disparities and ensure that the benefits of economic growth reach all segments of
society.
Promoting sustainable development
Aid can be used to promote sustainable economic development that benefits all members of society.
This includes investing in sectors that have a high potential for job creation, supporting
entrepreneurship, and fostering innovation. By creating economic opportunities, aid can contribute to
reducing income inequality.
Overall, foreign aid plays a crucial role in addressing poverty reduction and income inequality.
However, it is important to note that aid alone cannot solve these complex issues. Sustainable
development, inclusive policies, good governance, and long-term investments are also essential for
achieving lasting poverty reduction and reducing income disparities.

While foreign aid is generally aimed at reducing poverty and addressing income inequality, there can
be negative impacts associated with these efforts. It's important to acknowledge and consider these
potential drawbacks in order to design and implement more effective aid strategies. Here are some
negative impacts to consider:
Dependency on aid
Long-term reliance on foreign aid can create a dependency mindset, where recipient countries
become heavily reliant on external assistance instead of developing their own sustainable sources of
income. This can hinder efforts to build self-sufficiency and economic resilience.
Corruption and mismanagement
In some cases, foreign aid can be misused or mismanaged, leading to corruption and inefficiencies.
Funds intended for poverty reduction and addressing income inequality may be diverted or
embezzled by corrupt officials, resulting in limited impact on the target population. This can
perpetuate poverty and exacerbate income disparities.
Distorted economic incentives
The influx of foreign aid can distort local economies and create unintended consequences. For
example, the availability of free or heavily subsidized goods from foreign aid can undermine local

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industries and discourage domestic production. This can hinder the growth of local businesses and
exacerbate income inequalities in the long run.
Unequal distribution of aid benefits
Despite the intention to address income inequality, aid programs may inadvertently fail to reach the
most marginalized and vulnerable populations. Due to various factors such as political considerations
or limited access to resources, aid may primarily benefit those who are already better off, thereby
widening income disparities.
Negative impact on local markets:
In some cases, the provision of free or heavily subsidized goods through aid can negatively impact
local markets. Local producers may struggle to compete with the influx of inexpensive or free goods,
leading to job losses and reduced economic activity. This can have adverse effects on income levels
and exacerbate inequality.
Cultural and social consequences
Aid programs may not always align with local customs, traditions, and social structures, potentially
leading to unintended negative consequences. Programs that do not consider local contexts and
community participation may undermine social cohesion and cultural integrity, further exacerbating
inequalities within societies.
To mitigate these negative impacts, it is crucial to prioritize sustainable and locally-led development
approaches, promote good governance and transparency, and engage in dialogue and collaboration
with local communities and governments. Furthermore, aid programs should be carefully designed
and continuously monitored and evaluated to ensure their effectiveness and minimize unintended
negative consequences.

Foreign aid and domestic investment

Foreign aid and domestic investment can have complex and interrelated dynamics. While there is no
definitive consensus among economists and researchers, there are several ways in which foreign aid
can influence domestic investment:
Complementary Relationship
Foreign aid can complement domestic investment by providing additional resources to support
development efforts. Aid can be used to fund infrastructure projects, education and healthcare systems,
and other essential sectors, which can create an enabling environment for increased domestic
investment. By addressing critical gaps and providing a foundation for economic growth, foreign aid
can stimulate and attract private investment.
Crowding Out Effect
On the other hand, some argue that foreign aid can potentially crowd out domestic investment. When
a country receives significant amounts of aid, it may reduce the incentive for the government and
domestic private sector to mobilize their own resources for investment. The availability of aid may lead

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to a decrease in domestic savings and investment rates as the country becomes reliant on external
assistance.
Catalytic Effect
Foreign aid can also have a catalytic effect on domestic investment. Aid can help build institutions,
improve governance, and enhance the business environment, which can boost investor confidence and
attract more domestic and foreign investment. By addressing fundamental development challenges, aid
can create a positive cycle of investment, growth, and poverty reduction.
Sectoral Focus
The impact of foreign aid on domestic investment can vary depending on the sector or industry targeted
by the aid. Aid directed towards sectors with high potential for economic growth, such as infrastructure,
agriculture, and manufacturing, can stimulate domestic investment by reducing bottlenecks, improving
productivity, and attracting private capital. However, if aid is concentrated in non-productive sectors
or fails to align with the country's development priorities, its impact on domestic investment may be
limited.
Policy Conditionality
Many forms of foreign aid are tied to policy conditions, requiring recipient countries to implement
specific reforms or meet certain criteria. These conditions can encourage investment-friendly policies,
such as improving governance, transparency, and regulatory frameworks. By promoting good
governance and economic reforms, foreign aid can create an environment conducive to domestic
investment.

It's important to note that the relationship between foreign aid and domestic investment is complex and
context-specific. The effectiveness of aid in promoting domestic investment depends on various
factors, including the quality of institutions, policy coherence, absorptive capacity, and the overall
development context of the recipient country.

Challenges that Bangladesh faces

Bangladesh, like many other countries, faces various challenges when it comes to foreign aid. While
foreign aid can provide important support to developing nations, it also brings with it certain
difficulties. Here are some challenges that Bangladesh may face in relation to foreign aid:
Aid Dependency
A significant challenge is the potential for aid dependency. Bangladesh has been a recipient of
substantial foreign aid for many years. While aid plays a crucial role in supporting development efforts,
overreliance on aid can hinder long-term economic and social progress. Bangladesh needs to ensure
that aid is effectively used to build self-sufficiency and sustainable development, rather than creating
a culture of dependency.

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Conditionality and Policy Alignment
Foreign aid often comes with conditions and policy prescriptions imposed by donor countries or
international organizations. These conditions may be aligned with the donors' own priorities and may
not always reflect the specific needs or circumstances of Bangladesh. Striking a balance between
meeting donor requirements and maintaining national sovereignty and policy autonomy can be
challenging.
Aid Coordination and Fragmentation
Bangladesh receives aid from various sources, including bilateral donors, multilateral institutions, and
non-governmental organizations (NGOs). Coordinating and managing the diverse aid flows can be
complex, leading to fragmentation and duplication of efforts. Ensuring effective coordination among
donors and harmonizing aid strategies with national development priorities is crucial.
Absorptive Capacity
Bangladesh needs the capacity to effectively absorb and utilize the aid it receives. This includes having
strong institutional structures, skilled human resources, and efficient implementation mechanisms.
Building and enhancing absorptive capacity is essential to ensure that aid translates into tangible
development outcomes.
Aid Effectiveness and Results-Based Management
Measuring the impact and effectiveness of foreign aid can be challenging. Bangladesh needs robust
monitoring and evaluation mechanisms to track the utilization and results of aid. Strengthening data
collection and analysis, as well as adopting results-based management approaches, are crucial to
demonstrate the effectiveness and value of aid investments.
Transparency and Accountability
Ensuring transparency and accountability in aid utilization is a significant challenge. Bangladesh needs
to establish strong systems for financial management, procurement, and reporting to ensure that aid is
used efficiently, effectively, and in a corruption-free manner. Promoting transparency and
accountability builds trust with donors and enhances aid effectiveness.
Climate Change and Resilience
Bangladesh is highly vulnerable to climate change impacts, including natural disasters and sea-level
rise. Addressing climate change challenges requires substantial financial resources and technical
assistance. Integrating climate change adaptation and resilience-building measures into development
programs and attracting climate finance are crucial challenges in the context of foreign aid.
Political and Security Concerns
Political stability and security issues can affect the delivery and allocation of foreign aid. Donors may
be hesitant to provide aid in politically unstable or conflict-prone situations. Ensuring political stability,
good governance, and security is essential to attract and maintain foreign aid support.

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Debt Sustainability
While foreign aid can be in the form of grants or concessional loans, there is a risk of accumulating
debt if borrowing is not managed carefully. Ensuring debt sustainability and managing the terms of
borrowing are crucial challenges for Bangladesh to avoid over indebtedness and maintain financial
stability.
Addressing these challenges requires strategic planning, effective governance, capacity building, and
strong partnerships with donors and development partners. It is important for the government to
strategically manage aid flows, diversify funding sources, strengthen domestic institutions, and
prioritize investments in human capital and sustainable development projects to maximize the benefits
of foreign aid. Moreover, Bangladesh needs to focus on leveraging foreign aid to promote self-reliance,
inclusive development, and long-term sustainability.

Key Areas of Development and Progress

Bangladesh can use foreign aid to support various aspects of its economic development
including infrastructure development, agricultural and rural development, social sector
investments and so on. Some of the ways that Bangladesh can use foreign aid to develop its
economy are:

Infrastructure development

Foreign aid can be used to fund major infrastructure projects in Bangladesh, such as roads, bridges,
ports and power plants. These projects would help improve connectivity, reduce transportation costs,
and promote economic growth.

Agriculture and Rural Development

Agriculture is a major sector of the Bangladeshi economy. Foreign aid can be used to support
agricultural modernization, improve irrigation systems, seed and fertilizer distribution, provide
advanced farming techniques and research and development. This can lead to increased productivity,
higher incomes for farmers, and a more resilient agricultural sector.

Industrial development

Bangladesh's industrial sector has grown significantly in recent years, with the garment industry
being the largest contributor to the economy. Other significant industries include pharmaceuticals,
jute and textiles, leather and footwear, ceramics, and shipbuilding can be more developed by foreign
aid.

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Human Capital Development

Foreign aid can be directed towards improving education and healthcare systems. Investments in
quality education and training programs can help develop a skilled workforce, which is crucial for
economic diversification and attracting foreign investments. Enhancing healthcare services can
contribute to a healthier and more productive population.

Development in Information Technology

Bangladesh's information technology sector has grown rapidly in recent years, with the
development of software and other IT services, as well as the expansion of the country's
internet and mobile networks. Foreign aid can be used to help in this sector.

Microfinance
Bangladesh is known for its successful microfinance programs, which have helped provide
small loans to entrepreneurs and small businesses. Foreign aid can be used to support
these programs, which could help promote economic growth and reduce poverty.

Foreign aid can be used as an important asset in supporting Bangladesh's economic

development. However, it is important that aid resources are used effectively and efficiently
to ensure that they contribute to sustained economic growth.

Advantages of foreign aid in Bangladesh

Foreign aid has played a significant role in Bangladesh's development. It has helped to improve the
country's infrastructure, education, healthcare, and poverty reduction efforts. Here are some of the
advantages of foreign aid in Bangladesh.
Economic growth and development
Foreign aid can help Bangladesh's economy expand and thrive. Building roads, bridges, and power
plants are examples of infrastructure projects that can be financed with the support of foreign
financial aid and investments. For instance, the Asian Development Bank (ADB) has given
Bangladesh financial support for a number of initiatives, including the building of the Padma Bridge,
which is essential for enhancing connectivity and boosting economic activity.
Reduce poverty
By providing financial relief to the needy, sponsoring development initiatives, and making
investments in healthcare and education, foreign aid can contribute to the reduction of poverty in
Bangladesh. For instance, the World Bank has given Bangladesh billions of dollars in aid to help
fight poverty and raise living standards.
During Rohingya crisis in 2017, many nations and organizations sent millions of dollars to support
them and poverty reduction

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Improve health
By supporting medical facilities, training medical staff, and providing access to necessary
medications, foreign aid can contribute to an improvement in Bangladesh's health. For instance,
Bangladesh has received millions of dollars in aid from the United Nations Children's Fund
(UNICEF) to help improve child health.
The World Health Organization played a vital role in supporting Bangladesh's healthcare system
during the COVID-19 pandemic. WHO provided technical support, medical supplies, and financial
aid to strengthen the countries to fight against the virus.
Increase education
By sponsoring schools, developing instructors, and giving access to textbooks and other educational
materials, foreign aid can contribute to improving education in Bangladesh. To help improve access
to education for girls, the United States Agency for International Development (USAID) has donated
millions of dollars in aid to Bangladesh.
One example of foreign aid aimed at increasing education in Bangladesh is the support provided by
the Global Partnership for Education (GPE). The GPE has contributed funding to
Education Sector Development Programmed (ESDP), constructing and upgrading school
infrastructure, including classrooms, libraries, and sanitation facilities, improving access to quality
pre-primary education.
Reduce disaster risk
Foreign aid can help to reduce disaster risk in Bangladesh by providing funding for early warning
systems, disaster preparedness programs, and post-disaster recovery efforts. For example
(Comprehensive Disaster Management programmed funded by the European union which goal is to
manage and respond to natural disasters like cyclone, flood etc.
Agriculture and Food Security
Improving Bangladesh's agricultural practices, boosting food security, and fostering sustainable lives
all benefit greatly from foreign assistance. Projects that improve agricultural practices, teach farmers,
and ensure market access are frequently supported by donor nations. The Food and Agriculture
Organization (FAO) has participated in a number of projects in Bangladesh that support sustainable
farming methods and deal with concerns pertaining to food security.
In 2020 USAID provide $39 million dollar for urgent food needs for 300000 people in Bangladesh at
the Covid -19 period.
Protect environment
By giving financing for environmental protection programs like reforestation, watershed
management, and pollution control, foreign aid can help to protect the environment in Bangladesh.
For instance, Bangladesh has received millions of dollars in aid from the United Nations
Environment Programmed (UNEP) to aid in environmental protection.

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Promote gender equality
By sponsoring initiatives that support women's empowerment, such as education, healthcare, and
microfinance, foreign aid can aid in the promotion of gender equality in Bangladesh. For instance,
Bangladesh has received millions of dollars in aid from the United Nations Development
Programmed (UNDP) to help in providing relief to the needy, such as food stamps, unemployment
benefits, and healthcare subsidies. As an illustration, the World Bank has contributed billions of
dollars to Bangladesh to promote gender equality.
Strengthen social safety nets:
By sponsoring initiatives that help the underprivileged, such as food stamps, unemployment
compensation, and healthcare subsidies, foreign aid can contribute to the strengthening of
Bangladesh's social safety nets. The World Bank has been supporting the Government of Bangladesh
since 2010 to maximize the impact of these safety net programs on the poorest households
particularly.

It is important to note that foreign aid is not without its critics. Some argue that it can create
dependency, distort local economies, and be used for political purposes. However, the evidence
suggests that foreign aid can be an effective tool for development, when it is well-targeted and well-
managed.

Why foreign aid Doesn't work

Foreign aid basically refers to any voluntary assistance given by a country or organization to another
country which can be in the form of grant or loan. According to a source from 'The Guardian' DAC
member countries gave 179 billion in foreign aid in 2021, which is 4.4 percent more than in 2020. Of
that, 18 billion is given for humanitarian aid. Bangladesh in 2021-22 the fiscal year, ADB, JICA, World
Bank, Russia, China received 10 billion dollars from friendly countries. It seems that foreign aid will
bring benefits to developing and underdeveloped countries. But why is it not actually working?
Poverty business
One of the reasons why foreign aid does not work is poverty business. Even when developed countries
give foreign aid to poor people in developing countries, it goes to the stomachs of the rich. Even many
developing countries embezzle themselves huge sums of money in the name of helping the poor.
However, people do not get even a drop of it.
Distortion
Foreign aid transfers can distort individual incentives, and hence hurt growth, by encouraging rent
seeking as opposed to productive activities. We construct a model of a growing small open economy
that distinguishes two effects from foreign transfers: (i) a direct positive effect, as higher transfers allow
the financing of infrastructure; (ii) an indirect negative effect, as higher transfers induce rent-seeking

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competition by self-interested individuals. In this framework, the growth impact of aid is examined
jointly with the determination of rent-seeking behavior.
Corruption
One of the reasons why foreign aid does not work in our country is corruption. Every year Bangladesh
receives a huge amount of money, but it does little work. If you don't want there, the name of a political
party comes up. Many big political figures are involved in this corruption. A few percent of the huge
amount of money that is smuggled out of the country every year is foreign aid. With this money they
buy real estate properties and luxurious goods and fill the houses.
Cumbersome process
A slew of factors combines to make aid effectiveness less than optimal. They include lack of aid
predictability, issues of coordination among the large numbers of donors, and aid fragmentation—all
of which have real implications at the country level.
Lack of ownership
After any country receives foreign aid, it is wasted due to various mismanagement of government,
private and NGOs and conditions given by donor groups. Due to poverty, countries are particularly
lagging behind in various administrative infrastructures, from communication, transport and power
systems to the education and healthcare sectors. When an NGO is given the responsibility to work with
foreign aid money, it can be seen that the various operations of these organizations such as: office
expenses of the organization, salaries of officials, travel, accommodation and incidental expenses are
mainly used from the aid money.
For example: In the case of Afghanistan, 30% of the administrative costs of foreign aid NGOs given
by the USA are spent.
Donor dependency
While giving aid, different donor agencies impose different conditions on NGOs and recipient country
governments. For example, from the various officials working on the project to the engineers and
general workers, the various construction work tools must be taken from the companies recommended
by the donor. In complying with these conditions, the recipient countries have to lose much of the
money received from foreign aid.

-----------According to the National Voluntary Review, seven out of ten Somalis still live below the
poverty line. Only 53 percent of children and 55 percent of youth can go to school. Again, various
economists say that foreign aid is of no use to developing countries.
According to global financial integrity, developing countries lose 24 times more money than they
receive due to unfair trade rules and fraud invoicing. Even donor countries are sometimes biased in
giving foreign aid. For example, according to the information of The Guardian, in 2018, Congo,
Mozambique, Tajikistan, Uganda, Haiti are the five poorest countries in the world, but none of these
five countries received the majority of the money given by the USA and the UK, the largest foreign aid
donor country in the world. Rather got Pakistan, Ethiopia, Jordan, Tajikistan, Syria, Egypt, Kenya.

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That is, it can be seen that the countries that need more money do not get any money at all. So it may
be said that 'foreign aid is taking money from poor people in a rich country and giving it to rich people
in a poor country'.

Conclusion:
Foreign aid can play a crucial role in promoting economic development, but its effectiveness depends
on various factors. While aid can provide much-needed resources and support to developing countries,
it must be accompanied by good governance, transparency, and accountability to ensure its optimal
impact. Moreover, aid should be targeted towards long-term sustainable development, including
investments in infrastructure, education, healthcare, and technology. Additionally, partnerships
between donor countries and recipient nations, based on mutual respect and collaboration, are essential
for aid to yield meaningful results. Ultimately, foreign aid can contribute positively to economic
development, but its success relies on careful planning, effective implementation, and comprehensive
strategies.

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