Economics Coursework, LDCs Essay Example | Topics and Well Written Essays - 1000 words

Economics Coursework, LDCs - Essay Example nts are usually monetary aid which need not be paid back while loans are monetary funds given and need to be repaid with interest, further there are two forms of loans, soft loans which are loan advanced in concession rates or given and need to be rapid below market interest rates. Hard loans which are loans given under the prevailing market interest rate level. Foreign aid given to developing countries is either tied aid or untied aid. Tied aid means that there are conditions while untied aid has no conditions attached to them. This paper however discusses the important and the role that international monetary institutions have played in improving the current states of the developing countries. Developing countries are faced with the problem of low levels of economic development, high levels of poverty, low capital accumulation and high population growth. Foreign aid is one way in which the developing countries are able to come out of the current state, aid offered by the international institutions therefore play a major role in the improvement of the economic performance of developing countries. Developing countries are faced with low levels of savings and therefore low levels of investment, international institutions give aid to the developing countries to help reduce the shortage of domestic saving through the provision of capital and equipment which supplement the capital formation in these countries. Because capital accumulation is one form of achieving higher economic growth, the international institutions give aid to developing countries to encourage capital formation and accumulation in their economies. The diagram below shows the relationship that exists between savings and investment, when there is low savings then there is low investment, and bearing in mind that investment is a source of economic development then the level of economic growth will be low if there is low savings. Foreign aid is a means by which the less developing countries are able