A Political Economy of Aid

Abstract

We model how the size of a leader's support coalition and government revenues affect trades between policy concessions and aid. We find that aid benefits donor and recipient leaders, while harming the recipient's, but not the donor's, citizenry. The willingness to grant policy concessions for aid depends on how easily leaders can reimburse supporters for their concession. As coalition size increases, incumbents rely more on public goods to reward supporters, making it difficult to compensate for policy concessions. Small-coalition leaders rely more on private goods to retain office, making it easier for them to grant policy concessions for aid. Empirical tests of bilateral aid transfers by Organization for Economic Cooperation and Development (OECD) nations between 1960 and 2001 support the predictions that (1) aid is given by wealthy, large-coalition systems; (2) relatively poor, small-coalition systems are most likely to get aid; but, (3) conditional on receiving aid, the amount increases as the recipient's coalition size, wealth, and policy salience increase. Evidence suggests that OECD members have little humanitarian motivation for aid giving.

International Institutions and Domestic Politics: Can Preferential Trading Agreements Help Leaders Promote Economic Reform?

“…However, there are few systematic empirical analyses of these arguments. Most scholarship on leaders focuses on cooperation or bargaining (Bueno de Mesquita and Smith 2009;Dreher and Jensen 2009 Although the PTA literature is burgeoning, few studies reach beyond trade liberalization to examine the general issue of economic reform. This is unfortunate because PTAs can offer valuable insights into the role of international institutions in economic reform.…”

Citizen preferences and public goods: comparing preferences for foreign aid and government programs in Uganda

“…According to the aid capture theory, the public in the recipient country is the biggest loser in this relationship since aid does not provide public goods, reduce poverty, or increase growth (Bueno de Mesquita and Smith 2009;Moyo 2009). Rather, aid keeps corrupt governments in office longer to pursue undesirable policies (Svensson 2000;Alesina and Weder 2002;Morrison 2009;Briggs 2012;Jablonski 2014).…”

Strategic Side Payments: Preferential Trading Agreements, Economic Reform, and Foreign Aid

“…1 Previous research has shown that strategic interests, such as direct support to military allies or important trading partners, dominate over altruistic considerations (Alesina and Dollar 2000). Accordingly, donors use foreign aid either to support loyal regimes or to buy policy concessions from governments that are willing to implement the same in exchange for fungible resources (Bueno de Mesquita and Smith 2009).…”

“…First, if foreign aid can facilitate economic reform in the context of PTA formation, interactions between foreign aid and treaty formation warrant further attention. Even if foreign aid has limitations as an instrument of statecraft (Bueno de Mesquita and Smith 2009;Stone 2008), it may be effective in conjunction with a legally binding treaty. Second, our findings contribute to the PTA literature by showing how major powers can use PTAs to promote economic reform.…”