Diversity Trumps Quantity: Types of Foreign Aid, Donor Fragmentation and Democratization

Abstract

This paper investigates the effects of donor fragmentation on democratization. The presence of a large number of donors has been shown to impact negatively on bureaucracy quality and economic growth in the recipient country. But does donor fragmentation also affect democratization? I argue that the effect differs depending on the type of aid: Fragmented general aid has a negative impact on democratization, because it erodes some of the prerequisites of democracy. Fragmented democracy aid, however, has a positive impact on democratization, because diversity on the donor side provides choice to the multitude of local actors involved in the process, increasing the viability of resulting institutions. A highly concentrated donor community would lead to the imposition of an institutional blueprint, designed in advance and not adapted to the needs of the recipient society. These propositions are tested with data for 135 countries over the period 1990 to 2008. The temporal dynamics are examined with an error correction model. The causal mechanism is traced using the case of Ghana. Empirical evidence suggests that fragmented general aid indeed has a negative impact on democracy. But the presence of a large number of donors providing democracy aid has, contrary to common wisdom, a positive impact. This impact is independent of the amount of aid spent: The diversity of democracy aid trumps the quantity of democracy aid.

Keywords: foreign aid, democratization