Trade, Aid and Inter-Regional Development
In this paper we present a model of regional development of an underdeveloped country which is actively engaged in foreign trade and receives a sizeable amount of foreign aid but wishes to eliminate dependence on foreign assistance at the end of a perspective plan and move into a path of self-sustaining growth which is defined to be a growth path without any aid. The underdeveloped country in question is assumed to be a union of two regions-region 1 and region 2. The ‘rest of the world’ with which it trades and from which it receives aid is regarded as region 3. Military aid and short-term political aid to keep some approved regime in power will be assumed to be either non-existent or exogenous to our model. All aid is therefore economic aid. As a first approximation, we shall assume that region 3 offers a fixed proportion of its gross national product as aid to the underdeveloped country. The division of this aid between region 1 and region 2 is done according to some donor-recipient joint utility maximisation.
KeywordsRecipient Country Underdeveloped Country Federal Subject Foreign Assistance Safety Belt
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