The Political Economy of Foreign Aid: An Overview of the Carrot and Stick

Abstract

In political economy discourse, aid is a focus of world attention. A school of thought sees it as developed nations’ hands of “friendship” to the less developed ones; a way of promoting growth, development and peace. Another school sees it as a way of promoting the national interest of donor nations. This paper examines the political economy of aid from both perspectives to discuss the politics and intrigues involved in the use of carrots and sticks approach. It also dwells on the arm-twisting involved in the allocation of aid by donor nations as well as x-rays the view that foreign aid are more of political economy and less humanitarian. The study found out that less developed countries are the major recipient of foreign aid, and in most cases, aid does not bring the expected anticipated positive changes or development but sometimes leads to crises of arrested development. In conclusion the paper observes that aid by the donor countries is a double edge sword because of the conditionalities often attached: you agree to our terms you get our aid if not you do not. The paper consequently, recommends a more humanitarian aid from donor nations to recipient nations, and also propagates the need for less developed countries to look more inward than outward for development strategy in a globalised world that is veering towards protectionism. The methodology adopted by this paper is analytical, while dependency theory illuminates the study.