The Welfare Economics of Foreign Aid

Mohammad Rahman
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Mohammad Rahman: Yale University

The Pakistan Development Review, 1967, vol. 7, issue 2, 141-159

Abstract: The purpose of this paper is to discuss the forces governing the demand for foreign aid by recipient countries, and the associated question of choice of domestic savings for financing economic growth, in a situation where foreign aid is available at an institutionally determined low rate of interest. The discussion rests on a highly stylized conceptual exercise in optimizing the time-pattern of investment, foreign aid, and (hence) domestic savings over a long but finite period of time, with a non-linear social preference function to be maximized subject to the attainment of a target plan terminal level of national income 1. The preference function to be maximized is assumed to be the sum (integral) of one-period (instantaneous) "utility" derived from aggregate consumption over the entire plan period, with marginal utility from consumption falling as consumption of any period (point of time) rises.

Date: 1967
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