The Economic Impact of the USAID Shutdown

Marcella Nicolini () and Fabio Sabatini ()
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Marcella Nicolini: University of Pavia
Fabio Sabatini: Sapienza University of Rome

No 18698, IZA Discussion Papers from IZA Network @ LISER

Abstract: On 28 January 2025 the second Trump administration issued a blanket stop-work order on the United States Agency for International Development (USAID), terminating the largest national bilateral aid programme worldwide. We use this natural experiment to estimate the impact of the aid cut on two outcomes in Africa: local economic activity, measured through nighttime light radiance around USAID project sites; and acute food insecurity, measured through the Integrated Food Security Phase Classification (IPC) at the subnational level. First, the cessation of USAID activities produced a sharp and significant decline in nighttime light radiance within 500 m to 10 km of project sites, attenuating monotonically and undetectable at 25 km. Second, areas more exposed to USAID humanitarian assistance saw relative increases in population in IPC Phase 3 (Crisis) or worse and Phase 4 (Emergency), with effects building over the first post-shock year, amplified in higher-vulnerability regions and approximately fourteen times larger in less democratic countries. Third, both effects are driven by humanitarian-aid cuts; the nightlight effect is also driven by productive-sector cuts.

Keywords: foreign aid; USAID; natural experiment; nighttime lights; food security; IPC; difference-in-differences; Africa (search for similar items in EconPapers)
JEL-codes: F35 O12 O19 Q18 R11 (search for similar items in EconPapers)
Date: 2026-05
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