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Economics of Developing Countries

Question 2:

To what extent can international aid provide an effective long-term solution to the problem of underdevelopment?


Economic underdevelopment describes a condition that is characterized by increased poverty levels, low literacy levels, and low per capita income. Most countries, especially developing countries, always face the ‘underdevelopment shock’ (Astuti, Sugiyanto, and Kurnia, 2022). By definition, the shock of underdevelopment is mainly associated with ‘the culture of poverty.’ Therefore, since the poverty culture relates to the shock of underdevelopment, a country that intends to address the issue of underdevelopment must address the poverty culture. One way through which a country can help reduce poverty is by seeking international aid. Hence, this essay addresses how international aid can provide a long-term solution to underdevelopment.

The problem of underdevelopment

Economic developments are defined based on their per capita levels (Todaro, 2015). This means that to address the underdevelopment issue, and the country must focus on improving its per capita levels. In addition, the country must focus on attaining the development core values. The development core values include the following. The first development core value is sustenance. Sustenance describes the ability of a nation to meet its basic needs. Finally, the development’s core value is servitude freedom. By attaining the servitude problem, it means that the nation can be able to make choices from a variety of options. Therefore, it means that a nation that has achieved these development core values has managed to address the issue of underdevelopment.

International aid

According to Johnstone (2019), aid describes the process of transferring resources which is a concessional element. Therefore, international aid describes the assistance that developed countries offer to developed countries. The type of assistance or aid these developed countries may offer to the developing countries include; food, expertise, money, labour, and knowledge. These types of aid can play a critical role in addressing the problem of underdevelopment in developing countries.

The role of international aid in addressing the problem of underdevelopment

Since the 1970s, developing countries have increasingly relied on developed countries to stimulate their economic growth (Todaro, 2015). This reliance on developed countries may take the form of international aid. This means that with the availability of international/ foreign aid, a developing country may rely on developed nations to access these aids to stimulate their economic growth. The various ways the developing country may rely on international aid to address their underdevelopment problems include the following.

According to Rostow’s ‘stage-of-growth model of development,’ a country’s transition from underdevelopment to a development state happens or occurs in a series of steps (Todaro, 2020). According to Rostow, this means that a country that needs to address its issue of underdevelopment must try to follow these steps. In addition, Rostov described that for this issue to be addressed, the country must transform and attain self-sustaining growth. Therefore, a nation may utilize the Rostow stage of the growth model to benefit from international to address its issue of underdevelopment.

Rostow suggests that the first strategy for a nation to take off in its quest to address underdevelopment is to generate sufficient investments, which are essential for economic growth (Whitaker, 2021). A country can be able to achieve this by having sufficient funds. International aid provides financial resources that a country can use to generate investments. However, the extent to which these financial resources/ aids benefit a country depends on the policy models of a country. For a country to witness success in its investments, it must pursue good policy models. One of the good policies which a nation can have is trade openness. It is important to note that a country that does not pursue any good policy will not benefit from the availability of foreign aid. Therefore, a country with access to investment funds is more likely to achieve the economic transition from an underdeveloped country to a developed one. The Harrod-Domar growth model demonstrates economic growth due to investment (Todaro, 2020). According to the model, growth in new investments is essential since it provides for the required capital. This capital is essential since it helps replace capital goods, which include buildings. In addition, the increased capital in a country plays a role in improving production. This is because, with increased capital, a nation can increase its output and thus become self-sustenance. Self-sustenance is one of the core development values. Therefore, this nation is said to have addressed the issue of underdevelopment.

Finally, international aid addresses the issue of underdevelopment through the provision of expertise, knowledge, and labour. However, the extent to which this can be effective in the long term depends on the capacity of the country to absorb foreign/international resources. The three components of economic growth are labour, knowledge, and expertise. The theory explaining how underdeveloped nations can be able to address this problem is the structural change theory. According to the theory of structural changes, various nations should address their issues with underdevelopment by transforming their economic structures from traditional systems to more modern and industrialized systems (Comin, Lashkari and Mestieri, 2021). This structural transformation can only occur if the developing country has sufficient labour and expertise. Therefore, with international aid, especially in the form of labour, knowledge, and expertise, the nation will be able to transform its structural economy into a more modern industrialized economy. Hence, with a nation transforming into an industrialized economy, this is a long-term solution to address the issue of underdevelopment.


Therefore, it is evident that international aid plays a critical role in addressing the problems of underdevelopment within developing countries. International aid occurs in various forms, which include financial assistance, labour, knowledge and expertise. These are essential components of economic growth that developing countries take advantage of to address their underdevelopment issues. For instance, financial assistance helps developing countries increase their investments, while labour and expertise help adopt new economic structures. However, the extent to which this international aids assist a country depends on the policies adopted by that country.


Astuti, I.P., Sugiyanto, F.X. and Kurnia, A.S., 2022. The role of financial inclusion in poverty reduction: A production theory approach. Economic and Business Horizon1(1), pp.24-32.

Comin, D., Lashkari, D. and Mestieri, M., 2021. Structural change with long‐run income and price effects. Econometrica89(1), pp.311-374.

Johnston, L.A., 2019. The Belt and Road Initiative: what is in it for China? Asia & the Pacific Policy Studies6(1), pp.40-58.

Todaro, M.P. and Smith, S.C., (2015). Economic development. Pearson UK.

Todaro, M.P. and Smith, S.C., (2020). Economic development. Pearson UK.

Whitaker, M.D., 2021. Agriculture and Economic Growth. In Agriculture and Economic Survival (pp. 1-20). Routledge.

Question 6:

To what extent is corruption always bad for economic growth? Answer this question concerning the various types of corruption which commonly occur in developing countries.


Every nation across the globe strives for economic development. For economic development to take place, it must involve changes within entire social and economic systems. A country is said to have undergone economic growth if it manages to increase and widen its range of citizens’ choices. However, the efforts to achieve economic development can only be supported if corruption is prevalent within a country. This paper examines the extent to which the different forms of corruption affect growth.

Definitions and forms of corruption

According to Pozsgai-Alvarez (2020), corruption is the misuse of a public office for individual or private gains. Therefore are various forms of corruption that occur mainly in developing countries. These types of corruption include; collusion, extortion, and expropriation. These forms of corruption are bad for economic growth.

The effects of the various forms of corruption on economic growth

  • Collusive corruption

The first form of corruption is collusive corruption. Collusive corruption is a form of corruption whereby two parties, the bribe payer and the receiver, come to terms and agree to engage in corrupt practices (Pou and Khobung, 2023). In addition, this type of corruption can mean a form whereby a government official and another individual agree to come together and rob government revenues. On top of that, this corruption may take the form of an individual paying a certain amount to ensure they win a contract. This type of corruption in a country critically affects economic growth.

Collusive corruption leads to inequality. Corruption increases inequality by exempting some individuals from paying taxes. If an individual is exempted from paying taxes, there will be income inequality between individuals who earn the same income. This means that the presence of corruption affects wealth distribution and human development. Economic inefficiency is one of the main dangers of income inequality to a nation. Economic efficiency means that the population that can access loans in a country is limited. This makes it difficult for individuals to create investments which would influence production, thus increasing sustenance. In addition, collusive corruption affects the country’s human development index (HDI). The HDI index is a tool used to measure a nation’s socioeconomic development determined by various factors such as health and education. Therefore, with corruption, the HDI of a nation is affected. This means that due to the inequality caused by corruption, only a few individuals involved in the corrupt practices will be able to acquire high-quality education and health services. Hence, the inequality experienced in the healthcare and education sectors affects the human development index, thus affecting economic growth. This is because both education and healthcare are the main components of economic growth.

  • Extortion

This is a form of corruption whereby state or public officials insist on being paid bribes. This corruption may take the form of refusing to grant an individual a contract before they pay a bribe and refusing to grant a certificate before a bribe is paid (Adisa and Alabi, 2021). This corruption is bad for economic growth since it acts as an extra tax, thus slowing business activities. This type of corruption is bad for a country’s economy due to the following.

With extortion, the rate of business activities in a country slows down. The reduction of the rate of business activities in a country leads to a decline in the gross domestic product (GDP). Nations can only experience development if their GDP is high. GDP describes the number of finished products and services in the country’s economy.

In addition, since this form of corruption may take the form of asking for bribes to secure contracts, the nation may end up experiencing the dangers of this form of corruption, especially in the quality and quantity of spending. This would attract the low quality of services, especially in the service sectors, with the individual trying to lower the quality of services to cover the money lost to bribe the state officials. This means that despite an individual being granted the opportunity and the responsibility to provide quality social services such as education and healthcare, the individual ends up providing low-quality services. Therefore, the country will not be able to achieve what it was supposed to achieve by improving its healthcare and education facilities.

  • Expropriation

This is a form of corruption, especially when an employee or a state official decides to steal public/ state assets and money. Expropriation can also be referred to as theft. This corruption is bad and harmful to economic growth since it drains the country’s budget, resulting in low-quality service (Chang et al., 2022). In addition, expropriation is also associated with an increase in taxes. One of the sectors affected by the low quality of services is the health and education sectors. It is important to note that both education and health care play a critical role in achieving the core development values. This is because, with better health care and education systems, the result is increased human capabilities. One of the core development values is sustenance. Therefore, a country offering a low-quality education cannot absorb new technologies within their territories, which would help them become self-sustaining. On the other hand, low healthcare quality affects a nation’s productivity. Therefore, the role that expropriation plays in negatively influencing the quality of education and healthcare in a country is critical and bad for the economic development of that country.


Corruption in developing countries may take various forms, which include; extortion, Collusive corruption, and expropriation. All these forms of corruption are bad for a country’s economic growth. Some of the reasons why these forms of corruption are bad for the economic development of a country include; increased inequality, effects on human development and, finally affects, the provision of quality social services. Therefore, every country should strive to address these forms of corruption within their territory to ensure that it does not hinder economic growth and development.


Adisa, W.B. and Alabi, T.A., 2021. An empirical investigation of court users’ encounters with bribery, judicial extortion and corruption victimization in Lagos State. Crime, Law and Social Change75, pp.141-163.

Chang, X., Li, S., Liu, C., Sun, L. and Zhang, W., 2022. Local political corruption and financial reporting conservatism. Available at SSRN 3431661.

Pou, K. and Khobung, V., 2023. Systemic Corruption: Phenomenon Ensuing Marginalization of Tribals in Manipur. In Marginality in India (pp. 210-224). Routledge India.

Pozsgai-Alvarez, J., 2020. The abuse of entrusted power for private gain: Meaning, nature and theoretical evolution. Crime, Law and Social Change74(4), pp.433-455.


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