ABSTRACT
Since the early 1980s, annual inflows of foreign aid to developing countries have increased rapidly. One of the fundamental objectives of foreign aid inflows to developing countries is to stimulate economic and social development in these countries. However, the experiences of developing countries show that aid has not been equally effective in promoting economic development and social welfare in these countries. Some of the countries that received such aid in the 1950s and 1960s, such as South Korea and Taiwan, have grown rapidly since then and have become aid donors in turn. In contrast, some of the recipient countries like Somalia, Rwanda and Haiti have not shown any improvement in economic or social development despite the massive annual inflows of foreign aid during the last two decades of 1980s and 1990s. There are, however, no clear answers to the question ‘Why aid has not been effective in stimulating economic and social development in some countries while it has worked well in some others?’ Some studies argue that conditions such as macroeconomic stability, an efficient structure of government administration, political stability and good governance must be present before foreign aid can contribute to the development of the recipient country. Currently, the world is facing the new global threats of HIV and AIDS, climate change and rising prices of food and fuel. Therefore, the donors are forced to divert their funds in finding solutions to these threats, giving less priority to the fundamental objectives of foreign aid.
