Identifying mutual interests: How donor countries benefit from foreign aid

Tobias Heidland, Maximilian Michael, Moritz Schularick and Rainer Thiele

No 2291, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Official development assistance (ODA) is widely studied for its impact on recipient countries, but its effects on donor countries remain underexplored. To address this gap systematically, we develop a conceptual framework for understanding when foreign aid generates measurable returns for donor countries as well as those cases when donor and recipient interests align-what we term mutual interest ODA. We categorize potential donor benefits into three domains: economic, geopolitical, and security-related, and distinguish these benefits by their timing and degree of directness. We then systematically survey the empirical evidence on donor benefits, assessing the empirical credibility and magnitude of estimated effects and pointing out research gaps. We find consistent evidence of substantial donor benefits across all three domains. A key insight is that aggregate aid flows often mask significant variation: The returns to donors depend critically on the type of aid, delivery modality, and recipient context. These findings have important implications for both academic and policy debates on the effectiveness, political sustainability, and future direction of development aid.

Keywords: foreign aid; donor country benefits; aid effectiveness; development policy (search for similar items in EconPapers)
JEL-codes: D64 F35 H87 O19 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dev and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:319886

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