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Foreign aid is not the only kind of foreign assistance, but it might be the most controversial. The United States provides foreign aid of various kinds to over a hundred countries in the world. The cost of foreign aid amounted to $44 billion in 2022 (completed data) and $45 billion in 2023 (partially reported) for American taxpayers. Some of the different types of foreign aid include bilateral aid, military aid, multilateral aid, and humanitarian assistance.
Key Takeaways
- Governments of developed countries often invest in and assist developing nations to the tune of several billions of dollars each year.
- Assistance is intended to promote global economic and political stability, encourage growth and development, and protect allies around the world.
- Aid typically takes the form of foreign direct investment, humanitarian aid, and foreign trade incentives.
Types of Foreign Development Assistance
There are three primary forms of international aid, as well as various sub-types. We explain these a little further in detail below along with some of the most recently reported statistics.
Foreign Direct Investment (FDI)
Foreign direct investment (FDI) comes from multinational or transnational corporations. These are typically equity holdings of foreign assets by non-residents of the recipient country. For example, American companies may engage in FDI by buying a controlling interest in a Nigerian company.
FDI reached a peak of approximately $3 trillion globally in 2007 and declined for several geopolitical and macroeconomic reasons. Global FDI peaked back up to $2.76 trillion in 2015, fell to $895 billion in 2018, after a small rise, and dropped again in 2020. As of 2022, FDI is back up to almost $2 trillion.
Aid From Governments and Nonprofits
The second primary type is what people normally think of when they hear the term foreign aid. These are official development tools designed and funded by government agencies or international nonprofits to combat the problems associated with poverty.
Humanitarian efforts spearheaded by governments are almost exclusively done by wealthier nations that are also members of the Organization for Economic Co-operation and Development (OCED). Each year, OECD countries spend between $100 billion and $150 billion in foreign aid, with 2023 rising to a record $223.7 billion, mostly in response to the Ukraine crisis.
Foreign Trade
The third primary type is foreign or international trade. This form of aid is much larger and much less intentional. By all accounts, openness to foreign trade is the single leading indicator for developmental progress among developing countries, perhaps because free-trade policies tend to go hand-in-hand with economic freedom and political stability. An excellent breakdown of this relationship can be seen in the Index of Economic Freedom provided by The Heritage Foundation.
U.S. foreign aid not only helps receiving countries develop economically and politically, but it also advances U.S. interests. This includes national security, global stability, and economic advancement.
U.S. foreign aid not only helps receiving countries develop economically and politically, but it also advances U.S. interests. This includes national security, global stability, and economic advancement.
Foreign Aid Disbursements
One of the most critical issues in the foreign aid conversation is disbursement. Most disbursements are measured in terms of money given, such as how many dollars were donated or how many low-interest loans were extended. Many foreign aid bureaucracies define success based on nominal monetary disbursements. Critics counter that dollars of funding do not always translate to effective assistance, so measuring simply in monetary terms is insufficient.
Foreign aid disbursements face many hurdles, including local corruption and alternative domestic agendas. For instance, a 2015 report from the Stockholm International Peace Research Institute found that billions in aid to Afghanistan were wasted or stolen by kleptocrats who used the money to suppress entrepreneurs and even to purchase expensive villas.
Bilateral Aid
Bilateral aid is the dominant type of state-run aid. Bilateral aid occurs when one government directly transfers money or other assets to a recipient country. On the surface, American bilateral aid programs are designed to spread economic growth, development and democracy. In reality, many are given strategically as diplomatic tools or handsome contracts to well-connected businesses.
Most problematic bilateral aid disbursements are simple, direct cash transfers. Such foreign aid to Africa has been “an unmitigated economic, political, and humanitarian disaster,” as written by Zambian-born economist and World Bank consultant Dambisa Moyo in her book Dead Aid: Why Aid Is Not Working and How There Is a Better Way to Help Africa. Foreign governments are often corrupt and use foreign aid money to bolster their military control or to create propaganda-style education programs.
Military Aid
Military aid can be considered a type of bilateral aid, with one twist. It normally requires one nation to either purchase arms or sign defense contracts directly with the United States. In some cases, the federal government purchases the arms and uses the military to transport them to the recipient country.
The country that receives the most military aid from the United States, and the most aid in general, is Israel. For fiscal years 2022 and 2023, the American government bankrolled the Israeli military to the tune of $3.3 billion.
Multilateral Aid
Multilateral aid is like bilateral aid, except it is provided by many governments instead of one. A single international organization, such as the World Bank, often pools funds from various contributing nations and executes the delivery of the aid.
Multilateral assistance is a small part of the U.S. Agency for International Development’s foreign aid programs. Governments might shy away from multilateral aid because it is more challenging to make strategic decisions when several other donors are involved.
Humanitarian Assistance
Humanitarian assistance can be thought of as a targeted and shorter-term version of bilateral aid. For example, humanitarian aid from wealthy nations poured into the coastal regions in South Asia after a 9.0 magnitude earthquake triggered a tsunami in the Indian Ocean, killing more than 200,000 people. Because it tends to be higher-profile than other types of aid, humanitarian efforts receive more private funding than most other types of aid.
Which Countries Receive the Most Foreign Aid?
Ukraine received the most money through development and humanitarian response programs as of September 2023. The country received more than $1.7 billion. Syria and Yemen were the second- and third-highest recipients with about $1.5 billion and $1.4 billion in aid, respectively.
What Is the World’s Worst Humanitarian Crisis?
The crisis in Yemen is considered one of the world’s worst humanitarian crises. The country went through nine years of conflict, leaving 18.2 million people in need of aid. According to the United Nations Population Fund, half of the country’s population has no access to food while millions are suffering from malnutrition.
What Kind of Aid Does the International Monetary Fund Offer?
The International Monetary Fund (IMF) is a development bank. As such, it provides financial assistance to countries in crisis so they can develop projects and policies to give their economies a boost. The organization also helps these and other nations avoid future crises.
The Bottom Line
Foreign aid is a form of financial assistance from one country to another. The goal is to help the receiving country go through an economic, humanitarian, or other crisis. Not only does foreign aid help the recipient, it also helps the donor country advance its own interests—notably, political, economic, and security.
