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Geopolitics, Aid and Growth

Axel Dreher (), Vera Eichenauer and Kai Gehring

No 575, Working Papers from University of Heidelberg, Department of Economics

Abstract: We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test 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 aid. Our results show that the relationship of aid with growth is significantly lower when aid has been committed during a country’s tenure on the UNSC. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are inadequate as instruments for overall aid, raising doubts about a large number of results in the aid effectiveness literature.

Keywords: aid effectiveness; economic growth; politics and aid; United Nations Security Council membership; political instruments (search for similar items in EconPapers)
Date: 2014-10-21
New Economics Papers: this item is included in nep-dev and nep-pol
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