Aid for economic development: the efficiency of EU aid programs to developing countries

Abstract

Foreign aid has often been envisaged as a tool to boosting growth in aid recipient countries and eradicating poverty that many poor countries on the continent nowadays are confronted with. Whether aid succeeds in fulfilling its aims or not is not easy to answer. The highly controversial issue of aid effectiveness continues to baffle researchers and an ongoing debate around this topic keeps on drawing experts’ attention from all over the world. We have tried to examine aid from both a theoretical and an empirical perspective. The first chapter provides the reader with the necessary background so that he/she gets familiarized with the notion of aid and its purposes. The second chapter examines the welfare and terms of trade analysis of aid, focusing mainly on the so-called “Transfer Paradox” (i.e., the enrichment of the donor country and the impoverishment of the recipient) and the conditions under which it can occur. The third chapter is associated with the relationship between aid and corruption, namely whether aid can potentially foster corruption in recipient countries or not. The next chapter tries to identify the possible reasons for aid giving, namely what factors encourage donors to give aid to recipient countries. The issue of aid effectiveness is examined in the fifth chapter, paying attention to aid’s capability of meeting the Millennium Development Goals (MDGs) by 2015. The last chapter is devoted to the aid-growth nexus that is central in the literature on aid. We try to explain whether aid manages to boost growth in aid recipient countries or not and we illustrate this with two case studies from the real world, one for Bangladesh and one for Uganda.