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21 Cards in this Set

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What are the 3 things that AID consists of?

1) Financial flows


2) Technical assistance


3) Commodities/Grants/Subsidized loans

What are the two requirements for money to be considered AID?

1) Must be designed to promote economic development and welfare as its main objective


2) Must be a grant or subsidized loan

Concessional Assistance

Grants and subsidized loans that make up foreign aid

Nonconcessional Assistance

Loans that carry market or near-market terms


--> NOT AID

Official Development Assistance

Aid provided by the Development Assistance Committee (DAC) donor governments to low- and middle-income countries for development purposes

Private Voluntary Assistance

Grants from private organizations that are not ODA or DCA

The savings constraint gap

An economic motivation of AID; more domestic investment opportunities than available domestic savings - foreign savings can supplement domestic savings

Foreign-exchange constraint gap

An economic motivation of AID; shortage of foreign exchange to finance needed imports of capital and intermediate goods

Fiscal gap as an economic motivation for AID

The government has less realized tax revenues than planned government expenditures

Economic motivation for AID via growth and savings

The foreign aid can accelerate economic growth, which will eventually lead to higher domestic savings. This will result in the need for AID diminishing

Technical assistance

AID in terms of high-level worker transfers to train labor in developing countries, which fills the skill-gap

Absorptive capactiy

Aid is considered in relation to a recipient nation's ability to use aid funds wisely and productively

Tied Aid

Bilateral loans and grants that are tied to requests such as purchasing goods from the donor country

How can donors improve aid effectiveness? (4 ways)

1) Be more selective in what countries to give aid to, preferably ones with good policies and institutions


2) Recipients should have higher participation in setting priorities, designing projects, monitoring and evaluating results, and being accountable


3) Harmonizing and coordinating accounting and monitoring, evaluation systems, or pool funds


4) Result-based management: Aid based on what is working

What are the 3 main sources for FDI?

1) Private FDI and portfolio investment


2) Foreign aid


3) Remittances of earnings by international migrants

FDI Definition

Long-term investment in which a non-resident entity exerts significant control (>10%) over an enterprise in the host country

Foreign Portfolio Investment

Investors who have a smaller stake in an enterprise in foreign country

What are 6 reasons for increasing FDI?

1) Advances in technology in communication and transportation (accompanied by decreasing costs)


2) Changes in attitudes of FDI


3) Increase in world trade and competition


4) Rise in multinational corporations


5) Peace, Education, and Health


6) Emergence of globally-minded entrepreneurs

What are 7 arguments for FDI?

1) Filling the resource gap (between target and desired investment/savings)


2) Filling the foreign-exchange gap


3) Filling the tax gap


4) Filling the skill gap


5) Multinational corporations bring technology, create jobs, and increase specialization of production


6) Access to world market


7) Spread of new cultures (controversial)

What are some arguments against FDI?

MNCs may lower domestic savings and investment, ruin long-run exchange position (due to profit repatriation), receive tax concessions (stifling domestic competition and lowering the filling of the tax gap), and stifle domestic entrepreneurs


Ideological reasons: MNCs may exert political and economic power/control and use local resources in undesired ways

What are three strategies to increase FDI?

1) Improve general investment environment


2) Introduce policies aimed at attracting FDI (Timely info to investors, EPZ and increased infrastructure, and incentives via tax breaks or subsidizes)


3) Requirements and restrictions (Joint ventures, domestic content requirements, or other common restrictions such as ceilings on profit repatriation)