The (small) blessing of foreign aid: further evidence on aid’s impact on democracy

Abstract

In an empirical contribution to the literature of foreign aid, we estimate the impact of foreign aid on democracy in a panel of 93 developing economies during 1971-2010. We find that foreign aid promotes democracy, with the result robust to different estimation methodologies and control variables and to instrumenting for foreign aid.

Democratization via aid? The European Union’s democracy promotion in the Western Balkans 1994–2010

“…A review of the literature on the influence of foreign aid on democratization suggests rather inconclusive quantitative results. Dunning (2004), Goldsmith (2001a, 2001b) and Heckelman (2010) find a significant positive effect of aid on measures of democracy, whereas Altunbaş and Thornton (2014) argue that aid positively – but weakly – influences democratization. In contrast, Djankov et al.…”

“…While the anticipated positive impact of democracy assistance on democratization represents the foundation for its political rationale, whether – and if, how – democracy assistance works at all remains a hotly debated topic in academia (Burnell, 2007; Wolff and Wurm, 2011). The existing quantitative research presents two main findings on the impact of aid on democracy: First, foreign aid in general is at best weakly or even negatively associated with democratization in the recipient countries (Altunbaş and Thornton, 2014; Djankov et al., 2008; Finkel et al., 2007; Knack, 2004). Second, the effects of specific democracy assistance on democratization are mostly found to be positive (Finkel et al., 2007; Kalyvitis and Vlachaki, 2010; Scott and Steele, 2011).…”

Aid's impact on democracy

“…A core finding of Gisselquist et al (2021) is that studies that consider, broadly speaking, developmental aid (generally not strictly defined, and including studies of 'total aid', 'economic aid', and 'general aid') have overall ambiguous results. Some find developmental aid to have a positive impact on democratic outcomes (Altunbaş and Thornton 2014;Bratton and Van de Walle 1997;Heckelman 2010), while others point to negative impact (Ahmed 2012;Asongu 2012;Knack 2004). A variety of factors are shown in the literature to influence such outcomes, including those related to the provision of aide.g., the timing of aid (Bancalari 2015;Bermeo 2016;Dunning 2004), and whether the aid is bilateral or multilateral (Charron 2011;Menard 2012)-as well as to the characteristics of the aid recipient countries themselves-e.g., whether the recipient country is a democracy or an autocracy (Dutta et al 2013;Kosack 2003;Yuichi Kono and Montinola 2009), the size of the distributional coalition or level of personalism (Wright 2009(Wright , 2010, and institutional quality (Asongu 2012).…”

“…Within the research literature, a significant strand of work not only questions the effectiveness of aid but goes further to highlight ways in which aid may have detrimental impact on democratic governance (Bosin 2012;Bräutigam and Knack 2004;Easterly 2013;Fielding 2014;Moss et al 2006). Other work challenges these claims, providing evidence of positive (Altunbaş and Thornton 2014;Bratton and Van de Walle 1997;Finkel et al 2007;Heckelman 2010;Heinrich and Loftis 2019;Kalyvitis and Vlachaki 2010;Scott and Steele 2011;Ziaja 2020) and mixed effects (Dutta et al 2013;Kosack 2003). This ambiguity in empirical evidence in turn can arguably be linked with the diversity of contexts, periods, and definitions of aid and democracy in use in the research literature, as well as the distinct analytical methods and model specifications employed.…”

Does aid support democracy? A systematic review of the literature

“…Of the 91 studies included in this review, 64 conceptualize aid as 'total aid', often synonymous with 'total developmental aid', 'developmental aid', 'economic aid', 'financial aid', or 'general aid' (Ahmed 2012; Altunbaş and Thornton 2014;Asongu 2012;Bratton and van de Walle 1997;Charron 2011;Haass 2019;Heckelman 2010;Knack 2004). These studies either identify 'total developmental aid' as the sole type of aid under analysis or, in some cases, assess it alongside other types of aid (Dietrich and Wright 2015;Gibson et al 2015).…”