Supporting domestic development and domestic markets  Direct aid undermines local markets within developing states. Many economists believe that economic growth needs to occur at a local or micro level, with private industry spurring growth and providing employment opportunities [i] that act to elevate consumer demand. Chile is often given as an example of a country which has grown in this way.  Government aid frequently results in the growth of large, state-owned corporations which undercut the creation of local markets, preventing the development of private enterprise. This can be compared with the deskilling effect that long term food aid has caused within developing nations [ii] . Lacking the will or economic resources to expand land cultivation schemes, formally and culturally acquired farming have dropped out of use in a range of developing states. Dependence on centrally distributed aid is slowing reducing the number of skilled, practiced agricultural labourers able to work to grow food.  Similarly, state-owned resource extraction and processing firms can influence an economy’s real exchange rate, making cross border trade in the commodities produced by farmers and local craftsmen uncompetitive – a situation known as the Dutch disease. This is a significant hazard in continents with a high proportion of interdependent sovereign states, such as Africa.  State owned industry frequently undercuts local, privately owned industry in both the domestic and export markets of developing nations. Further, these processes raise the spectre of corruption in state institutions and state owned businesses [iii] , with large revenues tempting individuals to engage in graft, nepotism and patrimony.  The risks inherent in state supervised industry and micro-economic stimulus can be avoided by supplying aid funding to microbanking and microcredit institutions. Businesses of this type specialise in creating a large supply of low cost credit that small firms, farmers and households can borrow in order to fund the purchases and investments that will bring them closer to prosperity.  [i] “Direct aid: A dollar a day keeps the donor away.” Wahega.net. 23 January 2007.   [ii] The Development Effectiveness of Food Aid. The OECD. 2006, OECD Publishing.   [iii] The Political Economy of Foreign Aid. Hopkins, R F. Swarthmore College.