Introduction
The United Nations Human Development Report (UNDP, 1996) found that over the past 15 years (1981 - 1996) economic decline and stagnation has reduced the income of 1.6 billion people in Lower Developed Countries (LDCs). Furthermore, in 70 of these states, average incomes are now less than they were in 1980 and in 43 states less than in 1970. On the other hand, volume of foreign aid, which was at least partly meant to help economic growth and reducing poverty in developing countries has grown from an annual rate of US$4.6b in 1960 to US$58b in 1992. Thus, the persistently disappointing economic performance of LDCs since the early 1970s has raised growing international concern about the role and impact of concessional development aid and its effectiveness towards economic growth.
The purpose of this paper is to seek answers to the question whether foreign aid supports economic growth in developing countries and what the empirical evidence shows. In part 2, I will focus on definitions of foreign aid, their targets and problems of measurement. Part 3 will discuss the effectiveness of aid by using the results of studies about the economic performance of aid recipient countries.
The role of foreign trade has been crucial to the structure and pace of economic development in Saudi Arabia. Trade itself has been dependent upon oil production and the price of oil; crude and refined oil constitutes almost all the country's exports; the revenue so derived finances the vast developmental projects of the government, which, in turn, bring, directly and indirectly, the high value of imports.
There is very little alternative to this position. Oil can be kept in the ground, or exported. In the ground it offers no immediate revenues to the government. Out of the ground the massive revenues it generates give the government a choice -either to invest at home or abroad or a combination of the two.
To invest in government debt abroad or in foreign companies confines the role of Saudi Arabia to that of rentier in the world economy and increases its dependence on other countries.
The much more meaningful approach is to use the revenues to assist the development process within the country itself, to build up domestic industry and in the long term reduce economic dependence upon both oil and upon other countries. This may be rather a simplistic argument, but it is nevertheless true.
The Saudi Government is committed to economic development; it needs finance for this, hence there is, in the short term at least, a mutual dependence especially between western economies (including Japan) and the country. Saudi Arabia must have capital goods and managerial and technical expertise, other countries need the country's oil. Any slowing down of the rate at which these are imported would only bring a fall in the rate at which the country develops. What is more, this reliance upon imports can only cease when the nation has built a strong industrial base which allows these imports to be substituted.
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