Working Paper: CEPR ID: DP9904
Authors: Axel Dreher; Vera Eichenauer; Kai Gehring
Abstract: We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Donor countries? political motives might reduce the effectiveness of conditionality, channel aid to inferior projects, reduce the aid bureaucracy?s effort, and change the power structure in the recipient country. We investigate whether geopolitical motives matter by testing whether the effect of aid on economic growth is reduced by the share of years a country has served on the United Nations Security Council (UNSC) in the period the aid has been committed, which provides quasi-random variation in commitments. Our results show that the effect of aid on growth is significantly lower when aid has been granted for political reasons. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are invalid instruments for aid, raising doubts about a large number of results in the aid effectiveness literature.
Keywords: aid effectiveness; economic growth; political instruments; politics and aid; United Nations Security Council membership
JEL Codes: F35; F53; O11; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political motivations behind aid (F35) | Effectiveness of aid in promoting growth (F35) |
| Political favoritism (D73) | Quality of aid projects (F35) |
| Quality of aid projects (F35) | Economic growth (O00) |
| Political motivations behind aid (F35) | Bureaucratic effort in implementing aid projects (F35) |
| Bureaucratic effort in implementing aid projects (F35) | Economic growth (O00) |
| Political favoritism in aid allocation (F35) | Economic growth (O49) |
| Aid received during UNSC membership (F35) | Effectiveness of aid in promoting growth (F35) |
| Interaction between aid and UNSC membership (F35) | Economic growth (O00) |