Politics and the effectiveness of foreign aid

Abstract

Critics of foreign aid programs have long argued that poverty reflects government failure. In this paper I test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes. I find that aid does not significantly increase investment, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government. The impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive. But liberal political regimes and democracies, ceteris paribus, have on average 30% lower infant mortality than the least free regimes. This may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs. An implication is that short-term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs.