When Does More Aid Imply Less Democracy? An Empirical Examination

Abstract

Foreign aid flows have increased considerably during the last decades targeting, apart from the economic development of recipient countries, several goals related to their democratization process. In this paper we investigate whether aggregate aid has a differential impact on the future political regime of recipient countries. To this end, we use annual data on Net Official Development Assistance covering 64 aid-recipients over the period 1967-1999. We find that aid flows have an adverse impact on the likelihood of observing a democratic regime in the recipient. This effect is particularly strong in countries with bad economic and social conditions, but it is nearly zero in good environments. In addition, the negative effect of aid is moderated when aid flows are preceded by economic liberalization.

Keywords: democratization, foreign aid, binary model, endogeneity

JEL Classification: D70, F35, C25