In the most recent years, the developing countries realize the fact that they need to do trade instead of taking aid. In this regard, there are many controversies that whether trade or aid is beneficial for them. The point to be noted is that either the aid is taken in its literal meanings or not. In its literal meanings, it is the free transfer of resources and there is not found any condition on the provision of resources so a foreign exchange from trade cant be as valuable as of aid. But the picture is not so simple.
There is always a difference between grant and aid that is given to the developing countries on the part of developed nations. In the most cases aid given is tied i.e., there is some additional cost in the sense that the same goods or services might be cheaper in the free market as compared to the prices that are being charged from the recipients of aid. This increases the debt burden on the aid taking nations because they have to pay more.
The most favorable argument regarding trade is that in case of exports additional resources are provided indirectly by utilizing domestic goods and services. This creates a job opportunity in the home country raising the income level and standard of living. The people with higher income level save more thus raising the investment level in the economy that gives rise to cause further economic activity and the process continues. While the higher level of living raises the consumption leading towards increased GDP.
Although aid directly provides resources but at the same time it disintegrates the dignity of the receiving nation and its habitants and there always exists a superiority hand of the donor one. Moreover there is not any surety that all the aid will be generated honestly by the authorities. Another economic factor regarding trade is when the grant is made to the developing nations it creates a high inflation in the respective country.
An important factor is that if the funds of the aid are taken to do some constructive activity or to utilize the existing resources to develop economic infrastructure and sector development it is good and there is always a need of it. But if it is not so the funds are collected just to make spendings it would leads the nation towards budget deficit.
In a nutshell the developing countries are in a need of aid but to some extent, they are in a severe need of doing trade for making their future generations not to remain in the need of aid.
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