Bias in Aid Allocation? Genetic Distance-Based Evidence

Abstract

Do donor countries send more bilateral aid to recipients who are ethnically closer to them? This question is explored using a unique dataset on genetic distance which proxies for the time since two populations last shared a common ancestor. We control for conventional determinants of aid allocation and introduce new controls measuring economic, cultural and geographic distance between countries. We find that donor countries send more aid to genetically closer recipient countries. We investigate three potential causal mechanisms: immigrant lobbying, discrimination, and increased trust between ethnically similar people. Consistent with the trust literature, we find evidence for the latter.

Keywords: bilateral aid, genetic distance, trust, economic development

JEL Classification: F35, O1, R12, Z10