Trade and Aid - Economics/Geography A2 level

Aid and Trade are 2 ways to promote growth and development in an economy.

Trade helps an economy because it improves the volume and quantity of exports. This in theory will turn into jobs and improved living standards. Hopefully some of this income will be saved and therefore boost demand in the economy (hopefully include multiplier effect) and start developing as a country. Trade also creates long term jobs which is key for sustained growth. According to the Rostow Model this will push the country past the traditional sector and into the preconditions for take off or take off. I will go into detail on in a different post.
This theory is very simplified and  assumes developing countries all follow the same stages as the now developed European countries the theory was based on. Trade can increase inequality as it is the owners of the firms who keep the money and do as they please with it. Another problem with trade comes about when you are outside of a trading bloc and have to pay an external tariff to trade with countries inside. This prevents many of the lower developed African countries trading with the developed western countries.

One of the main barriers to growth is the savings gap, the difference between the money that is earned and the amount of money that can be saved and thus invested. Due to a high propensity to consume in poorer countries, finding money to save is difficult and thus investment is difficult.

Aid is a useful way of overcoming that savings gap. Aid can come in many forms:

• Bilateral aid - Aid from one country to another
• Multilateral aid - Aid that comes from multiple countries through an international agency such as the World Bank
• NGOs - Non governmental organisations such as Oxfam provide money and professional support This type of aid is unlikely to come with any conditions like the others

Aid can come in the forms of money or in the form of technical assistance in order to create infrastructure or to help boost certain industries. There are many problems with aid that include:

• Can come with tied conditions such as having to buy from the donor country
• Can lead to aid dependency 
• Corruption can cause the aid to never be distributed evenly or where needed.
• Can led to distorted market forces

As mentioned earlier you can get aid in different forms: 

• Tied aid - aid that comes with conditions
• Short term aid - usually comes after a natural disaster
• Long term aid- aid for long term developments such as the improvement of hospitals or infrastructure
• Top down aid - aid given to organizations for large scale projects such as dam building
• Bottom up aid - schemes at grassroots level, often by NGOs working with local communities.

So which is better, aid or trade?
I believe trade is greater than aid when it comes to helping a country to develop. Over the past 50 years Africa has received $500 billion in aid and despite this the continent still suffers from poverty, disease and corruption. Aid is not usually aid as it is usually tied to conditions such as buying from donor country. Aid also creates dependency which is not sustainable compared to growth because as a country increases trade it increases jobs and wealth in a way that they are not totally dependant on aid from other countries. However many developed countries have protectionist measures that prevent trade with developing countries as they would have to pay high taxes. But before a country can truly develop it needs to eliminate any major health problems such as HIV or malaria.