Geopolitics, Aid, and Growth: The Impact of Un Security Council Membership on the Effectiveness of Aid

60 Pages Posted: 27 Jul 2016

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

Vera Z. Eichenauer

KOF Swiss Economic Institute at ETH Zurich

Kai Gehring

CESifo; University of Bern - Faculty of Economics and Social Sciences

Date Written: July 26, 2016

Abstract

The paper investigates the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, the paper tests whether the effect of aid on economic growth is reduced by the share of years a country served on the United Nations Security Council (UNSC) in the period the aid is committed, which provides quasi-random variation in aid. The results show that the effect of aid on growth is significantly lower when aid was committed during a country's tenure on the UNSC. This holds when we restrict the sample to Africa, which follows the strictest norm of rotation on the UNSC and thus where UNSC membership can most reliably be regarded as exogenous. Two conclusions arise from this. First, short-term political favoritism reduces the effectiveness of aid. Second, results of studies using political interest variables as instruments for overall aid arguably estimate the effect of politically motivated aid and thus a lower bound for the effect of all aid.

Keywords: Economic Theory & Research, Industrial Economics, Economic Growth

Suggested Citation

Dreher, Axel and Eichenauer, Vera Z. and Gehring, Kai, Geopolitics, Aid, and Growth: The Impact of Un Security Council Membership on the Effectiveness of Aid (July 26, 2016). World Bank Policy Research Working Paper No. 7771, Available at SSRN: https://ssrn.com/abstract=2814787

Axel Dreher (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Vera Z. Eichenauer

KOF Swiss Economic Institute at ETH Zurich ( email )

Leonhardstrasse 21
Zürich, 8092
Switzerland

HOME PAGE: http://https://sites.google.com/view/vera-eichenauer/home

Kai Gehring

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Bern - Faculty of Economics and Social Sciences ( email )

United States

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