What Are the Benefits and Drawbacks of Foreign Aid?

Benefits of foreign aid include that recipient countries typically use the aid to fund development projects, such as infrastructure and education programs. Drawbacks of foreign aid include that it increases a developing country's dependency on donor funds and that it may be used by corrupt government officials for personal gain.

Donor countries also benefit from giving foreign aid by attaching conditions on aid given to developing countries. For example, the United States ties a percentage of aid to conditions that the recipient country purchase goods from the United Sates and implement political reform. Foreign aid that is utilized appropriately can reduce poverty in the targeted populations, while also improving access to education. Recipient countries are often able to improve sanitation, as well as access to quality health care in deserving areas.

Disadvantages of conditional foreign aid include that it takes away the decision-making ability of recipient countries, which deprives such countries of the opportunity to develop critical administrative skills. Bilateral aid may include conditions that may cause the destabilization of a government's authority in the recipient country, which was the case when Egypt accepted IMF terms to reduce subsidies and government spending in 1977.

Analysts have observed that bilateral aid tied to the development of democratic processes and institutions is more effective than multilateral aid.