THE IMPACT OF FOREIGN AIDS AND DEMONSTRATION EFFECTS ON ECONOMIC DEVELOPMENT IN LESS DEVELOPED COUNTRIES

In this paper, an attempt was made to discuss the impact of foreign aids and demonstration effect on economic development in developing countries. Various literature concerning aids and demonstration effect were reviewed. The paper observed that foreign aids are quite desirable in any economy because they play a major role in easing the constraints of low levels of domestic savings and investment as well as foreign exchange inadequacies. However, it was found that aids remained highly concentrated, going from a few number of developed countries to a few number of developing countries. It was also found that foreign aids have played a positive role in improving Human Development Index (MDI) in Less Developed Countries (LDCS). In view of the above, it was recommended that there should be more outright grants and confessional loans and less tied aids to give greater autonomy and flexibility to the recipients in terms of their allocation and uses. The paper posits that the LDCS should look inward as an alternative to foreign aids.