Misused Financial Aid, Political Aid, and Regime Survival
48 Pages Posted: 19 Oct 2009 Last revised: 10 Jan 2011
Date Written: January 2011
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: Suggested Citation