The Effects of War and Peace in Developing Countries

TheEffects of War and Peace in Developing Countries

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TheEffects of War and Peace in Developing Countries

Inmost cases, developing countries lack the kind of domestic capitalthey need in order to promote economic growth. As such, foreign aidbecomes one of the major potential sources of capital that isnecessary for the realization of economic growth in the developingworld. However, empirical evidence regarding the efficiency offoreign aid in boosting economic growth in developing countriesremains controversial. Whereas some researchers attribute foreign aidto economic growth and boom, some have actually stated that foreignaid leads to negative or backward economic growth in developingcountries (Trinh,2014).

Vietnamas a perfect example of a developing country has received foreign aidduring times of war and peace and the impact of the aid during thetwo periods varies a lot. The country’s officials have enactedseveral laws that have been at the center of alleviating some of thesocial and economic problems the country had during war to become oneof the countries with the fastest growth rate in the world. Thispaper analyzes the effect that war and peace have had on thedistribution of foreign aid in Vietnam and how the government hasenacted laws that help to improve the efficiency of the aid received.

Aidduring Times of Peace

Vietnamstarted enjoying relative peace in the mid-80s following theculmination of the conflicts it had with China along the border andother regions. Research by Wang and Balasubramanyam(2011) indicate that Overseas Development Aid (ODA) to Vietnam grewfrom less than 0.4 billion US Dollars to 2.55 billion US Dollarswithin the period between 1985 and 2008. In essence, foreign aid grewfrom making 1.11% of GDP to making 3.14% of the GDP. Statistically,the country has registered a growth rate averaging 8% per annum since1986. In the 80s, the country’s per capita income growth raterevolved around zero, but for the period between 1992 and 2009, itrose to 6% per year.

Mostof the foreign aid and Foreign Direct Investment (FDI) received byVietnam was assigned to sectors considered by the government as apriority. Such sectors include infrastructure, rural development,natural resources, human resource development, policy andinstitutional support, emergency relief, and industrial developmentamong others. Economic management received over one-third of all aidthe country received. Social infrastructure attracted about 27% ofall aid while resource development was assigned about 6% of totalaid. A report by UNDP indicates that aid solely aimed at economicgrowth consistently grew from 50% of all aid in the year 1993 to 85%by the year 1997. However, during the same period, aid aimed atpoverty reduction fell sharply (Wangand Balasubramanyam,2011).

Japanwas the highest provider of aid to Vietnam, accounting for more than56% of total aid between 1992 and 2008. Germany, Australia, Denmark,and France are the other major donors. World Bank and othermultilateral organizations also provide aid to Vietnam.

Vietnamranks as one of the countries that utilizes its donations in the mosteffective way. This is indicated by the strong economic growth thecountry has experienced over the past few years. According to WorldBank (2009), Vietnam had a per capita income of US$170, but by 2008,per capita income had crossed the US$1000. The government of Vietnamhas played a major role in ensuring that poverty levels in thecountry are lowered by enacting laws that work towards achieving thatgoal. One of the goals the country has is to become a developedcountry by the year 2020, and many researchers think that it is arealistic goal that can be achieved. The government is focused ontransitioning the country’s economy from a traditional market intoa market-oriented economy (World Bank, 2009). Some of the policiesenacted by the government to reduce poverty and transform the economyinclude Doi Moi, which aimed at adopting market mechanisms whereverit is possible whereas preserving social inclusion. Another policyaimed at reducing the inflation rate from 160% per year in 1988 toless than 10% in the year 1997. Additionally, there were trade policyreforms, financial deepening, and the enactment and enforcement ofthe institution of property rights.

Aidduring Times of War

Vietnamalso received financial aid during times of war, even during thelatest conflict in the mid-80s. However, as it could be expected, theaid was never used to do any tangible development and the countrycontinued to languish in poverty and scarcity. In the mid-80s duringa conflict with China, the country went through a major famine thatsaw a significant portion of its population go without food and otherbasic needs. An instance to indicate Vietnam’s reduced foreign aidin the period prior to 1985 is the war in which the US backed theSouth against the North. When the South lost to the North Vietnam,the US cut its foreign aid to the unified Vietnam to less than US$1million for several years that followed (Manyin, 2005). The UnifiedVietnam limited the use of the little aid that the country receivedto develop the North, which the South remained under poverty andminimum development. The distribution of aid was unequal, and theNorth was often prioritized over the South. Levels of FDI and foreignaid were very low and kept fluctuating every year (Dacy, 2008). Thecountry also seemed to rely on a few countries for help, as opposedto what is happening now where there is no single major donor. Nosingle country donates more than 15%, making financial situations inone or two countries not capable of devastating the economy ofVietnam.

References

Dacy,D. C. (2008). ForeignAid, War, and Economic Development: South Vietnam, 1955-1975.Cambridge University Press.

Manyin,M. E. (2005, February). US Assistance to Vietnam. LIBRARY OF CONGRESSWASHINGTON DC CONGRESSIONAL RESEARCH SERVICE.

Trinh,T. (2014). Foreign aid and economic growth: The impact of aid ondeterminants of growth-The case of Vietnam.

Wang,C., &amp Balasubramanyam, V. N. (2011). Aid and Foreign DirectInvestment in Vietnam. Journalof Economic Integration,721-739.

WorlBank. 2009. Vietnam:Laying the Foundation for Sustainable, Inclusive Growth. Retrieved19/7/15 fromhttp://siteresources.worldbank.org/IDA/Resources/IDA-Vietnam.pdf