Misused Financial Aid, Political Aid, and Regime Survival

48 Pages Posted: 19 Oct 2009 Last revised: 10 Jan 2011

See all articles by Sarantis C. Kalyvitis

Sarantis C. Kalyvitis

Athens University of Economics and Business - Department of International and European Economic Studies

Irene Vlachaki

Athens University of Economics and Business - Department of International and European Economic Studies

Date Written: January 2011

Abstract

This paper investigates the effects of foreign aid on the survival of the political regimes in the recipient countries by distinguishing between financial aid, which can be misused by the incumbent regime in order to remain in power at the expense of the productive capacity of the country, and political aid, which favours regime alteration through democratic transitions. To this end, we construct a simple model for the behavior of the incumbent and we derive testable hypotheses and predictions implied by the association of regime survival with financial and political aid. We investigate empirically these effects using data from 70 aid-recipient countries covering the period 1984-2002 and we find evidence that supports the central predictions of the model.

Keywords: foreign aid, political regime, corruption

JEL Classification: F35, D72

Suggested Citation

Kalyvitis, Sarantis C. and Vlachaki, Irene, Misused Financial Aid, Political Aid, and Regime Survival (January 2011). Available at SSRN: https://ssrn.com/abstract=1489897 or http://dx.doi.org/10.2139/ssrn.1489897

Sarantis C. Kalyvitis (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

Patission Str 76
GR-10434 Athens
Greece

Irene Vlachaki

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

76 Patission Street
Athens, 104 34
Greece

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