Effective Foreign Aid, Economic Integration and Subsidiarity: Lessons from Europe

An importance source of finance for poorer economies, is foreign aid; this paper examines some controversies surrounding its provision. The advanced economies have provided hundreds of billions of dollars in aid to the developing world over the last several decades; although this has done much good in some cases, many of these countries have grown very little, especially during the last two decades of the twentieth century. In fact some have argued that this aid has actually hindered development by creating perverse incentives and hindering democratic governance. Thus it would appear that much of this money has been wasted, but whose fault has it been and what can be done to improve the situation in the coming decades? This paper analyze these aid issues and propose that the answer to these questions can be partially found by examining the European experience in proving assistance to its disadvantaged regions. Of particular importance in this regard has been the way aid has been used to promote economic integration and how it has been distributed using the subsidiary principle.