Foreign Aid and the Poverty Trap: Increasing Aid Effectiveness by Limiting

Abstract

This paper explores the practical effectiveness of foreign aid in eradicating poverty in recipient countries. In recent years, poverty traps have become a more common problem in poor countries. The population of many developing countries is in multidimensional poverty, not only facing poor living conditions, but from a macro perspective, countries are difficult to get out of the cycle of poverty due to lack of capital, technology and reasonable institutions. Foreign aid, on the other hand, mainly provides support and help to poor countries in response to these problems, which are also the main aspects of its effectiveness analyzed in this paper. Based on the existing empirical results and theoretical analysis of foreign aid, this paper holds that the effectiveness of foreign aid will change due to the different objective conditions of recipient countries. In general, while it is obvious that foreign aid can promote economic development and infrastructure construction in poor countries, the effectiveness of foreign aid is weakened to some extent due to corruption and unreasonable distribution system in some recipient countries. Therefore, foreign aid should be targeted limited according to the existing problems of recipient countries to improve its effectiveness.