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The Welfare Economics of Foreign Aid

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  • MOHAMMAD ANISUR RAHMAN

    (Yale University)

Abstract

The purpose of this paper is to discuss the forces governing the demand for foreign aid by recipient countries, and the associated question of choice of domestic savings for financing economic growth, in a situation where foreign aid is available at an institutionally determined low rate of interest. The discussion rests on a highly stylized conceptual exercise in optimizing the time-pattern of investment, foreign aid, and (hence) domestic savings over a long but finite period of time, with a non-linear social preference function to be maximized subject to the attainment of a target plan terminal level of national income 1. The preference function to be maximized is assumed to be the sum (integral) of one-period (instantaneous) "utility" derived from aggregate consumption over the entire plan period, with marginal utility from consumption falling as consumption of any period (point of time) rises.

Suggested Citation

  • Mohammad Anisur Rahman, 1967. "The Welfare Economics of Foreign Aid," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 7(2), pages 141-159.
    • Handle: RePEc:pid:journl:v:7:y:1967:i:2:p:141-159
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    File URL: http://www.pide.org.pk/pdf/PDR/1967/Volume2/141-159.pdf
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    Cited by:

    1. Luke Okafor & Joanna Tyrowicz, 2010. "Saving less when there is more foreign lending? Foreign debt and savings in developing countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(3), pages 213-223.
    2. Anupam Das, 2011. "External Resources and Savings Rate: A Pooled Mean Group Analysis for Developing Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 3(1), pages 51-62.
    3. Denis Kessler & Dominique Strauss-Kahn, 1984. "Existe-t-il un lien entre l'épargne intérieure et l'afflux de capitaux extérieurs ?," Revue Tiers Monde, Programme National Persée, vol. 25(98), pages 269-297.
    4. M.A. Taslim & A. Weliwita, 2000. "The Inverse Relation between Saving and Aid: An Alternative Explanation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(1), pages 75-94, June.

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