This article considers economic grounds for giving aid to developing sates and their citizens. After reviewing the current sate of economic litereture, the article proposes an optimal foreign aid policy as a market enhancing strategy. In this view, foreign aid can be understood as a method to compensate market failures in trade, capital movement, and technological transfer in international economy.
This paper is a critical survey of recent literature on foreign aid with insight from the information and contract theory. Various problems, such as transfer paradox and fungibility are reviewed.
Finally, the economic literature of Japanese experience of Official Development Assistance will be reviewed.
