A Roundtable on Foreign Aid Weapon Exports and Aid to Developing Countries

Abstract

The goal of the rich countries should be to aid the poor countries to increase their standard of living but not to increase their holdings of weapons. It is shown that a basic dilemma arises. The structure of “consumption” of the recipient countries cannot be influenced by giving aid in the form of (civilian) goods rather than untied foreign exchange. The consumption of civilian goods can be increased by granting a price-subsidy but this leads to a smaller increase in utility than obtained with a transfer in money or kind. Transfers of goods with restricted substitutability and “all-or-none” schemes are suggested to overcome these conflicts, but they imply an interference with the internal affairs of the poor countries.