Economic Motives

Apart from political and military motivations, there are also some commercial motives for giving aid as they procure economic benefits as a result of their aid programmes. This is apparent as donors are increasingly tending towards providing loans instead of grants. It is indicated that interest bearing loans now constitutes over 80% of all aid compared to less than 40% in early periods. Here, "tied aid" either by source (i.e. loans or grants have to be spent on the purchase of donor country's goods and services) or by project (funds can only be used for specific projects) can be an example of commercial motives89. As it is stated by Thirlwall (1989), "there are some economic motives for developed countries investing in developing countries, not only to raise the growth rate of the developing countries, but also in their own-self interest to raise their own welfare" (Thirlwall, 1990, p.320). In this case, international aid can be mutually profitable.

In addition, some interest groups in the DCs provide some benefits from aid. These interest groups include exporters of goods and services bought by aid-recipient countries, those who have extended loans and credits to aid-recipient governments whose ability to repay them depends critically on continuing to receive aid funds, and those engaged in the aid industry as politicians, administrators and experts90 .

It can also be case that if foreign aid is useful in stimulating the growth rate of national income in a developing country, the effect of foreign aid can expand the demand for goods and services of developed countries91. Morrissey (1990) in his study, showed that multilateral aid has greater impact on the donor economy than tied bilateral aid92.

Economically, the donor will also gain if it is able to penetrate into the markets of developing countries.