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The Political Economy of Foreign Aid and Growth:Theory and Evidence

Sultan Mehmood () and Avner Seror ()
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Sultan Mehmood: University of Paris - IX

Working Papers from Chapman University, Economic Science Institute

Abstract: In this paper, we demonstrate that even when foreign aid is used to fund patronage, it may still have a positive - and significant - effect on economic growth in developing countries. First, we present a theory that formalizes the effect of aid on economic growth and patronage. Next, we provide evidence from Pakistan consistent with the predictions of the model that foreign aid increases economic growth, despite being used for patronage. The identification strategy we propose allows us to provide causal evidence for the predictions of the model.

Keywords: Foreign aid; Economic growth; Political Economy; Patronage (search for similar items in EconPapers)
JEL-codes: F35 D72 O1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-gro, nep-int and nep-pol
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:19-10

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