Economic impact of aid provided to Western Europe after World War II: Lessons for Eastern Europe

Foreign assistance to countries in need has grown from a temporary device to a permanent feature of international economic relations. The efficacy of such programs is subject to debate and of present interest for financial supporting programs for the Central and Eastern European countries (CEEC). This dissertation examines a famous historical precedent namely, the contribution of US assistance to the spectacular growth performance of Western Europe after World War II, and deduces determinants for efficacy and feasibility of current assistance programs for the CEEC.; Scholars that have worked on identifying the contribution of US assistance to postwar Western European growth, have tended to focus on the role of the European Recovery Program (ERP) exclusively. It was not sufficiently recognized that the ERP was embedded in a complex and intertwined system of several aid programs of similar magnitude (relief, ERP, and military aid).; To analyze the impact of that assistance effort on economic growth, the dissertation has traced out this complex system and showed that determining its exact magnitude and its impact relies on the understanding of the institutional framework of the aid programs under considerations.; Well-equipped with the knowledge from the institutional analysis, the contribution of US assistance to, as well as the relative importance of the different programs for the growth of Western Europe are studied by conducting an econometric analysis combined with simulation experiments. The analysis contradicts the mew that the ERP was the only assistance program contributing significantly to post-war European growth.; Our next econometric analysis then investigates the impact of current assistance provided by the European Community to Western European regions. In confronting its results with what we have learned from the historical precedent, the understanding of the institutional prerequisites for successful economic aid programs is enhanced as the keys to success of the different programs are identified. That confrontation allows us to draw lessons for better designing and targeting financial support programs for the CEEC in transition: make them sufficiently generous, make sure the recipient government is capable of minimal sound macroeconomic management, formulate precise objectives and establish a special institution for aid allocation.