Democracy, natural resources, and agricultural aid in Africa: Exploring the complex nexus of aid effectiveness and resource rent dependency

Abstract

The aid effectiveness is continually debated in development economics; there is no consensus among scholars on the impact of aid in developing countries, even though characterized by good institutions. An emerging issue in this discussion is the role of natural resources in determining the nature of the agricultural ODA (Official Development Assistance) and democracy nexus. Consequently, this study examines the effect of democracy on the agricultural ODA in Africa and how the country's natural resource rents mitigate this relationship using panel data of 50 countries over the 1995–2019 period. A set of econometric tools is used to estimate the time-series cross-sectional models, which include country fixed-effects model and system generalized method of moments (system GMM), both to account for potential endogeneity and confoundedness issues. Regression results show a long-run positive effect of democracy on agricultural ODA. However, this relationship is nonlinear. The interaction between democracy and resources indicates that natural resource wealth mitigates the positive gains from democracy on agricultural ODA. The study concludes that, while democratic reforms enhance the effectiveness of foreign aid directed to the agricultural sector, this positive effect depends on the natural-resource wealth status of the country.