In the past, conventional wisdom explained that the plight of developing countries was due to lack of resources, technology, education, and infrastructure. Foreign aid was meant to fill such gaps. Yet despite massive aid flows empirical findings on economic growth and foreign aid demonstrate that there is no positive correlation between the two. The rationale behind foreign aid involves increasing investments and providing budgetary support. In theory, conditionality frequently attached to aid is supposed to lead to better governance and more accountability. In practice, however, political and strategic considerations of donor countries remain paramount in granting foreign aid. Similarly, the International Financial Institutions have structural incentives that tend to make the continuation of their lending operations a goal in itself.
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