The Political Economy of Foreign Aid Effectiveness

Ieva Skarda

Discussion Papers from Department of Economics, University of York

Abstract: When resource allocation in a recipient country is characterized by an economic contest between the rent-seeking elite and economically active masses, foreign aid is more effective when there is lower economic inequality. This finding is supported by empirical evidence: increasing the aid/GDP ratio by one standard deviation is estimated to boost recipient growth by 0.25 points in the most equal aid recipients but reduce growth by 2.30 points in the least equal recipients; similarly, it is estimated to decrease the Gini coeficient by 0.35 points in the most equal recipients but increase it by 1.45 points in the least equal recipients.

Keywords: Foreign aid; Aid effectiveness; Growth; Inequality; Contest; Elite (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-dev and nep-pol
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