CHAPTER ONE
1.1 Background to the Study
Foreign aid constitutes the fund which takes the form of a gift, grant
or a loan that is voluntarily transferred by country to another. Aid
includes money transferred across borders by religious organizations,
non-government organizations (NGOs) and foundations. Some have argued
that remissions should be included, but they are rarely assumed to
constitute aid.U.S. Foreign aid is paid by the federal government to
other governments in the form of either economic assistance or military
assistance. The granting of funds for trade promote investments and
economic growth in the recipient country and the level of
export.(McGillivray and Morrissey 1998;Suwa-Eisenmann and Verdier 2007)
The exporters in the donor countries could also stand to benefit as
well from the macroeconomic effects of Aids for trades. The research
therefore seek to investigate Aid financing; implication for export
trade volume
1.2 Statement of the Problem
The impact of aid financing also
portends negative trends as foreign aid does not appear to significantly
increase the GDP growth of developing economies. This is because aid
funds in benefiting country are misappropriate by some government
officials for personal interest and can have negative influences on an
economy, such as encouraging rent-seeking behavior (Economides,
Kalyvitis and Philippopoulos, 2007).Rent-seeking behavior occurs when
individuals in power pursue personal gain instead of investing the
foreign aid in areas that would benefit the country as a whole. Although
foreign aid could have a positive effect on a country’s economy if
invested in the intended manner, however, the possible advantages are
counteracted through governing self-interest. In effect, foreign aid is
taken by a small, wealthy percent of the population, while the rest of
the country remains just as poor as they were previously (Holtham and
Economides, George, Sarantis Kalyvitis, and Apostolis Philippopoulos.
"Does Foreign Aid Distort Incentives and Hurt Growth? Theory and
Evidence from 75 Aid-Recipient Countries." Public Choice.
134.3/4 (2008): 463-488. Print. Hazlewood, 1976).4 Overall, receiving
money transfers promotes nonproductive decisions by creating too much
opportunity for personal gain. However, it continues to be heavily
disputed whether aid is really growth enhancing. More importantly in the
present context, it is open to debate whether donor countries would
reap most of the benefits if trade intensified because of positive
growth effects of aid. Principally, this channel should affect exports
from donors and non-donors alike, unless the aforementioned goodwill
effects result in trade diversion. Furthermore, aid-financed productive
investments might also boost recipient exports. As Aid inflows can have
adverse effects on the recipient country’s international competitiveness
by giving rise to real exchange-rate appreciation. Consequently, the
production of exportable would be discouraged in the recipient country.
At the same time, imports would increase. Even though donor countries
may supply only part of the additional imports, aid-induced effects
would clearly work in favor of donor exports and against recipient
exports. The problem confronting the research is to proffer an appraisal
of Aid financing; implication for export trade volume
1.3 Objectives of the Study
To determine the Aid financing and its implication for export trade volume
1.4 Research Questions
What is Aid Financing?
What is the Aid financing implication for export trade volume?
1.5 Significance of the Study
The study proffers an appraisal of Aid financing; implication for export trade volume
1.6 Research Hypothesis
Ho The implication of Aid financing on export trade volume is negative
Hi The implication of Aid financing on export trade volume is positive
1.7 Scope of the Study
The study focuses on the appraisal of Aid financing and its implication for export trade volume
1.8 Limitations of the Study
The study was confronted by some constraints including logistics and geographical factor
1.9 Definition of Terms
Foreign aid constitutes the funds which take the form of a gift, grant
or a loan that is voluntarily transferred by country to another. Aids
include money transferred across borders by religious organizations,
non-government organizations (NGOs) and foundations. Some have argued
that remissions should be included, but they are rarely assumed to
constitute aid.U.S. Foreign aid is paid by the federal government to
other governments in the form of either economic assistance or military
assistance. The granting of funds for trade promote investment and
economic growth in the recipient country and the level of
export.(McGillivray and Morrissey 1998;Suwa-Eisenmann and Verdier 2007)
The exporters in the donor countries could also stand to benefit as
well from the macroeconomic effects of Aids for trades
USAID
An independent federal agency of the
United States that provides aid to citizens of foreign countries.
Types of aid provided by USAID include disaster relief, technical
assistance, poverty alleviation and economic development. The agency
creates country-specific programs that provide tailored solutions based
on individual needs. USAID is under the guidance of the Secretary of
State.
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