State Formation and International Aid: The Emergence of the Palestinian Authority

Thirty years ago, Samuel Huntington criticized Western aid policy toward new states that assumed that economic improvement in the standard of living coupled with democratic institutions would yield a more stable and democratic state-building process. An extensive political economic literature on the developmental state has since emerged that explores the complex relationship between state capacity, economic development and democracy, much of it critical of both the economist assumption, and the importance of democracy in achieving sustainable growth, at least in the initial stages of statehood. This literature, however, does not specifically relate to the impact of international aid affects state consolidation despite its critical role in the initial stages of new states. The paper explores how international aid affects on new state formation in the 1990s as reflected by the Palestinian experience, and more specifically whether Huntington's criticism is valid today regarding the international aid regime toward the Palestinian Authority established in May 1994. It shows that international aid was initially based on economist assumptions, changed course to reflect the importance of the state, and now must seek a better balance between the centralization of power, developing state capacity, and promoting civil society.