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Geopolitics, Aid and Growth

Axel Dreher (), Vera Eichenauer and Kai Gehring

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

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.

JEL-codes: F35 O11 O19 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dev and nep-pol
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Working Paper: Geopolitics, Aid and Growth (2014) Downloads
Working Paper: Geopolitics, Aid and Growth (2014) Downloads
Working Paper: Geopolitics, Aid and Growth (2013) Downloads
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