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ID: 1222845 • Letter: H
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home / study / business / economics / questions and answers / the text offers two reasons why private investment ... Question The text offers two reasons why private investment might be better for poor countries than assistance tendered by foreign governments or international agencies. One is that technical assistance often comes along with private investment as part of the package. The other is that private investors may be more determined to see their funds invested profitably and therefore less likely to subsidize projects that do not promote economic growth. Can you think of any reasons for the opposite view: Why governments assistance or assistance by international agencies would be better for poor countries than private investment?
Explanation / Answer
Most countries in the world have not finished the progress of being industrialized. Most developing countries have more people than they can feed and the demand for food are at a parallel rate. Hence a majority of them have sunk into poverty and people from a hungry world.
Foreign aid can help alleviate hunger in populations hit by natural disasters and other crisis and supply food to support people who live in poor countries as they rebuild after a crisis. Foreign aid from developed countries and industrial organizations has become an important solution to the development of the human and material resources of these countries. The cure for the ills of underdevelopment has shown to be related to the high degree of foreign capital investments.
Development aid attempts to promote long-run growth of the LDCs by building large projects, giving budgetary and balance of payments help, and funding a variety of research and planning efforts. In many cases, aid agencies explicitly undertake such projects because the private sector refuses to finance them. Aid increases the role of government in the economic life of the Third World. It must be emphasized that free trade alone will not solve all the problems of the Third World, it can be done by the Third World themselves. World aid has to come about until people develop institutions that will lead to growth and prosperity.
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