Foreign Aid and Nepal's Development

Impact of Foreign Direct Investment on Nepal

As Fisher (2007) pointed out, modernisation and neo-liberalism are the main development theories that characterise the mainstream view of development, which focuses on finding solutions to problems that impede economic growth.

According to Jan Nederveen Pieterse (1998), by promoting the idea that developing countries should follow in the footsteps of developed ones and that the latter should help the former achieve economic growth, modernisation theory has given rise to the so-called “dependency theory”, which is against the placement of underdeveloped countries at the mercy of richer economies.

Despite being based on different principles from modernisation theory, neo-liberalism has also been criticised for similar reasons, as it revolves around free trade and the creation of open markets, which can lead to exploitation and environmental degradation, among the other things. (Moore, J. W., 2011)

Considering the importance that classical development discourse gives to international aid and Nepal’s reliance on foreign assistance, it would be interesting to analyse the effects that such assistance has had on the country’s economy, in order to determine whether it had truly helped Nepal reduce its poverty.

In the first place, the Development Assistance Committee defined international aid, also known as Official Development Aid, as “resources transferred on concessional terms with the promotion of the economic development and welfare of the developing countries as the main objective.” (Global Poverty Info Bank, n.d.)

Tied aid is a form of foreign assistance that Nepal is currently benefitting from and consists of granting a bilateral loan to a less-developed country, which will have to spend the funds received to purchase products and/or services from the donor country.

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(OECD, n.d.)
Nepal is highly dependent on foreign aid and, therefore, it is important that the country, through its government, should show its donor countries that it is heading towards a stabler political and economic future. In 2001, The Economist (2001) reported that Japan, Nepal’s largest donor country, as well as the World Bank and other organisations which assist the country, started losing confidence in Nepal after several members of the royal family were murdered earlier that year, which marked the beginning of a very instable political age.

However, considering that Nepal has been receiving international aid since 1952, it is hard to understand why so little progress has been made, in terms of economic growth and welfare.

According to Theroux (2004), foreign aid is what keeps developing countries poor, as it is used by governments to keep things as they are, without promoting change. Moreover, tied aid is offered under very strict conditions which benefit the donor country more than the recipient, which will have to purchase goods and services from it, usually at higher costs, and, as The Himalayan Times (2011) reported, it encourages dependence on foreign assistance, instead of self-sufficiency.

In conclusion, the principle according to which developing should be helped by developed ones through “foreign aid” could be the one of the main reasons why Nepal hasn’t yet achieved satisfactory results, in terms of economic growth, health, education, equality, political stability and welfare and development in general.

References

1. Fisher, C. M. (2007). Neo-Happiness Approach: Lessons from Past Paradigms to promote the Inclusion of Happiness in International Development. [online] Available at: <http://www.happysociety.org/ppdoconference/session papers/session11/session11 cathrine .pdf > (Accessed on 13 April 2012)
2. Global Poverty Info Bank (n.d.). Aid and Poverty. [online] Available at: <http://www.globalpovertyproject.com/infobank/aid> (Accessed on 13 April 2012) Moore, J. W.(2011).
3. Transcending the metabolic rift: a theory of crises in the capitalist worldecology. Journal of Peasant Studies, 38 (1), pp. 1 – 46 Nederveen Pieterse, J. (1998). My Paradigm or Yours?
4. Alternative Development, PostDevelopment, Reflexive Development. Development and Change, Vol. 29, pp. 343-373 [online]
5. Available at: <http://salises.mona.uwi.edu/sem1 10 11/SAL16010/m3ALTdevelopmentJanNPieterse Alte rnativePost-ReflexiveDev.pdf> (Accessed on 14 April 2012) OECD (n.d.).
6. Glossary of Statistical terms. [online] Available at: <http://stats.oecd.org/glossary/detail.asp?ID=3089> (Accessed on 13 April 2012)
7. The Economist (2001). Nepal’s economy in mourning. [online] 21 June. Available at: <http://www.economist.com/node/666549 > (Accessed on 14 April 2012) The Himalayan Times (2011).
8. Curtailment of purchasing power. [online] 20 December. Available at:
   <http://www.thehimalayantimes.com/fullNews.php?headline=Aidtying+by+donors++&NewsID=313393> (Accessed on 13 April 2012) Theroux, P. (2004).
9. Dark Star Safari: Overland from Cairo to Capetown. Mariner Books Avail