POLITICAL

ECONOMY,
FOREIGN AID &
DEVELOPMENT
By Group 5
Anish Ghimire
Abiral Pandey
Anubhav K.C.
Krismita Shrestha
Ekta Mishra
Rejika Joshi
 Foreign direct and portfolio
investment : Investmentin the form
International of acontrolling ownershipin
abusinessin one country by an
Flow Of entity based in another country.

Financial Remittances of earnings by

Resources international migrants: Remittances
of earnings by international migrants:
Transfer of moneyby aforeign
worker to an individual in his or her
home country.

Public and private (NGO) foreign aid:

It is aid from the perspective of
governments a voluntary transfer
ofresourcesfrom onecountryto
 Private
FDI Is a process where by residents
of one country(source country)
Foreign acquire ownership of assets for the
purpose of controlling the production
Direct and distribution and other activities.

investment FDI can take place for many reasons,

including to take advantage of
cheaper wages rate, special
investment privileges (e.g. tax
exemptions) offered by the country.
METHODS By incorporating a wholly owned
subsidiary or company anywhere
OF FDI
By acquiring shares in an
associated enterprise

Through a merger or an acquisition

of an unrelated enterprise

Participating in an equity joint

venture with another investor or
enterprise
Multinational
A corporation that controls
production facilities in more than
Corporation one country, such facilities having
been acquired through the process
of foreign direct investment.

MNCs provide an efficient means of

integrating national economies. The
enormous resources of the
multinational enterprises enable
them to have very efficient
research and development systems.
Thus, they make commendable
contribution to inventions and
MERITS OF MNCs help increase the investment
level and thereby the income and
MNCs employment in host country.

The MNCs enable the host countries

to increase their exports and
decrease their import requirements.

They work to equalize the cost of

factors of production around the
world.
 Political Studyingproductionand trade,
and their relations with
Economy law,custom and government,
as well as with thedistribution
of national income and wealth.
Use of how economic theory
and methods influence and
develop different social and
economic systems
Analyzes how public policy is
created and implemented.
 Political
Involves the use of Game Theory
Talks about different but linked
economy approaches to define and study
economics and other related
behaviors
Three approaches to political
economy:
Interdisciplinary Studies
New Political Economy
International Political Economy
 Political
Interdisciplinary Studies
Draws upon sociology, economics and
economy political science
Define how political institutions, economic
system and political environment affect and
influence each other
New Political Economy
Treats economic ideologies as actions and
beliefs that must be explained and
discussed further
Combines the ideals of classical political
economists and new analytical advances in
the field of economics and politics
Encourages the discussion of real world
political economy that is grounded by
 Political
International Political Economy
Also known as Global Political
economy Economy
Analyses the link between economics
and international relations
Draws from many different academic
areas such as political science,
economics, sociology, cultural
studies and history
Concerned with how political forces
shape systems through global
economic interactions
Also concerned with how such
actions affect political structures and
outcomes
 Public
Economics of the public sector
Study of government policy through the
economy lens of economic efficiency and equity
A framework for thinking about whether
or not the government should participate
in economic market
Ultimately used as a tool to improve
social welfare
 The abuse of public resources, power
and position to provide unfair
Political advantage to individuals, families
and friends.
corruption Common public resources that often

in the world pocketed by politicians are money,

goods, medical aid funds and budget
allocations
Corruption and economic turmoil
often go hand in hand
Corruption plays a major role in
fostering staggering poverty and
broken economic system
 1) Somalia
Top 10 corrupt Corruption Score: 8

countries Power structure: In the process of

building a federal Parliamentary
according to republic

transparency 2) North Korea

international Corruption score: 8
Power structure: Dictatorship
GDP :$ 28 Billion as of 2009
 3)Sudan
Top 10 corrupt Corruption score: 11

countries Power structure: Federal Republic

65.5% live under poverty line
according to GDP : $66.55 billion
transparency
international 4) Afghanistan
Corruption score: 12
Power Structure: Islamic Republic
the graveyard of empires: incredibly
difficult to not only conquer, but to keep
under control
 5) South Sudan

Top 10
Corruption score: 15
Power Structure : Republic
corrupt The majority of GDP around 80% is
countries derived from oil exports

according to
85% of the countrys workforce is engaged
in non-paid labor
transparency More than half live below poverty line

international
6)Angola
Corruption score: 15
Power Structure: Republic
 7)Libya:
Top 10 Corruption score: 16

corrupt Poer structure: Transitional

countries 8)Iraq
according to Corruption score: 16
transparency Power Structure : Federal

international Parliamentary Constitutional Republic

 9) Venezuela
Corruption score : 17
Top 10 Power structure: Federal republic
corrupt
countries 10) Eritrea

according to GDP : $3.44 billion

Population : 6.3 million
transparency

Corruption score: 18
international Power structure : Single Party
Presidential Democracy
 Denmark,New Zealand,Finland, and
Sweden are the four least corrupt countries
Least corrupt in the world, according to Transparency
International's 2014 Corruption
countries Perceptions Index
& Nepals
position in
Nepal is the 130 least corrupt nation out of
175 countries, according to the 2015
corruption Corruption Perceptions Index reported by
Transparency International.

Corruption Rank in Nepal averaged

127.83 from 2004 until 2015, reaching an
all time high of 154 in 2011 and a record
low of 90 in 2004.
 Nepal
Corruption
Rank
 Concept Of
Foreign aid is the international
transfer of capital, goods, or services
Foreign Aid from a country or international
organization for the benefit of the
recipient country or its population.
It is considered as a signal of
diplomatic approval to strengthen
amilitaryally,
To reward agovernment for behavior
desired by thedonor
To extend the donor's cultural
influence
To provideinfrastructure needed by
the donor for resource extraction
from the recipient country
 Types of Multilateral foreign AID

Foreign AID
Bilateral Foreign Aid
Non profit and non
governmental organizations
(World Vision, Doctors without
borders)
 Top 11
Donors of
foreign AID
 Afghanistan was the country which received $5265.95 million
being the highest receiver of foreign aid in 2013
Nepal relies heavily onforeign aid, and donors
coordinatedevelopment aidpolicy through the Nepal
Development Forum, whose members include donor countries,
international financial institutions (such as theWorld Bank), and
inter-governmental organizations (such as theUnited Nations).
TheUnited Kingdomis Nepals largest bilateral aid donor, and the
World Bank andAsian Development Bank are the largest
multilateral donors.
Egypt, Afghanistan, Myanmar, Vietnam, Ethiopia, Syria, India are
listed as top countries receiving foreign aid
Foreign Aid
The role of foreign aid in the growth
process of developing countries has
And Growth been a topic of intense debate.
Foreign aid is an important topic
given its implications for poverty
reduction in developing countries
Studies show mix results
 The main role of foreign aid in stimulating economic growth is to
supplement domestic sources of finance such as savings, thus
increasing the amount of investment and capital stock.
As Morrissey (2001) points out, there are a number of
mechanisms through which aid can contribute to economic
growth,
(a) aid increases investment, in physical and human capital
(b) aid increases the capacity to import capital goods or
technology
(c) aid does not have indirect effects that reduce investment or
savings rates; and aid is associated with technology transfer
that increases the productivity of capital and promotes
endogenous technical change.
 According to McGillivray, (2006), four main alternative views
on the effectiveness of aid have been suggested, namely
(a) Aid has decreasing returns
(b) Aid effectiveness is influenced by external and climatic
conditions
(c) Aid effectiveness is influenced by political conditions
(d) Aid effectiveness depends on institutional quality
 Not all transfer are foreign aid
Conceptual Economist have defined foreign aid

problem as any flow of capital to a developing

country that meets two of the
about the following criteria:

foreign aid
Its objective should be non
commercial from the point of view
of the donor
It should be characterized by
concessional terms: the interest
rate and repayment period for
borrowed capital should be softer
than commercial terms
Conceptual
But even this is inappropriate as it
includes military aid which is

problem excluded from international

economic measurement of foreign
about the aid flows

foreign aid
The concept of foreign aid is now
widely accepted is: the one that
encompasses all official grants and
concessional loans, in currency or in
kind, that are broadly aimed at
transferring resources from
developed to less developed nations
on development, poverty or income
distribution grounds.
 Conceptual The calculation of actual
development aid flow cannot be
and accurately calculated due to the

measurement following reasons:

It cannot add up dollar value of
problem grants and loans; due to different
in calculation significance to both donor and
recipient countries.
of actual Aid can be tied either by source or
development project where in either case the
real value of aid is reduced.
aid flow We need to distinguish between
the nominal and real value of the
foreign aid
 Amount
Official development assistance
(ODA) Net disbursements of loans or
and grants made on concessional terms by
official agencies, historically by high-
allocations: income member countries of the

public aid
Organization for Economic Cooperation
and Development (OECD).
ODA AS A SHARE OF GNI (%)
Countries 2011 2012 2013 2014 2015

United States 0.200 0.190 0.180 0.190 0.170

United 0.560 0.560 0.710 0.700 0.700

Kingdom
Germany 0.390 0.370 0.380 0.420 0.520

Japan 0.180 0.170 0.230 0.200 0.210

France 0.460 0.450 0.410 0.370 0.370

Sweden 1.02 0.970 1.010 1.090 1.410

Norway 0.96 0.93 1.07 1.00 1.05

Netherland 0.750 0.710 0.670 0.640 0.750

Canada 0.320 0.320 0.280 0.240 0.280

Australia 0.340 0.36 0.330 0.310 0.290

Net Official Development Assistance Received; World(Current US$)
Net Official Development Assistance Received; Nepal (Current US$)
Why donors Donor-country governments give
aid because it is in their political,
give aids? strategic, or economic self-
interest to do so. Some
development assistance may be
motivated by moral and
humanitarian desires to assist the
less fortunate (e.g., emergency
food relief and medical programs)
and certainly this has been the
international rhetoric in the
increases in aid in the first
decade of the twenty-first
century.
Why donors Political motivations: Political
motivations have been by far
give aids? the more important for aid-
granting nations,
Economic motivation
Also, moral and humanitarian
desires
 Political
Economic motivations: Two-Gap
models and other criteria
and Aid programs of developed nations

strategic
with economic rationale
Foreign-Exchange constraints

motivation
 Why LDC
To enable payment of interest on
foreign debt
recipient To supplement the lack of domestic

accept aid?
resources such as foreign exchange
To enable infrastructure changes to
be made to the economy such as
dams and roads
In countries like Zambia with a large
parallel economy and narrow tax
base, foreign aid is also an important
addition to government income.
 Foreign aid is seen as being necessary in order to maintain
power. Often foreign aid in the form of military goods provides the
power base that suppresses opposition and maintains the
existing government in power

Many people within the Less Developed Countries and the More
Developed Countries consider that the MDCs have a moral
responsibility to provide development assistance for the poorer
countries
The effects
Aid is used to increase productive
capacity and the benefits of resultant
of aid growth is widely spread and results in
a reduction and elimination of
poverty, inequality and
unemployment
Aid represents an injection of
resources into the economy that
enable investment hence growth,
Aid can help the transmission of new
ideas
The effects
Aid hinders if
Aid is spent on showcase
of aid infrastructure projects that damage
the environment and have little
impact in raising living standards e.g.
dams
Aid can lead to dependency rather
than self-reliance and self-sufficiency.
Aid is in the form free/cheap food in
non-crisis situation as the increase in
supply reduces agriculture prices for
local farmers disrupting markets
Corrupt governments can intercept
much assistance;
References
http://www.cheatsheet.com/business/7
-most-corrupt-countries.html/?a=view
all\
http://www.tradingeconomics.com/nep
al/corruption-rank
http://www.aabri.com/manuscripts/09
359.pdf
THANK YOU