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Instability from trade and democracy: the long-run effect of aid

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  • Thierry Kangoye

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    (CERDI-CNRS / Universite d'Auvergne)

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    Abstract

    Is there an effect of aid on democracy conditional on instability from trade ? This paper reinvestigate the debated effect of aid on democracy with a new specification. We take advantage of previous empirical findings explaining the role of aid in mitigating the adverse effects of external shocks, and argue that in the long term, aggregate aid flows can potentially dampen the effects of terms-of-trade instability on the quality of democracy. An empirical investigation with data from 70 developing countries (28 of them african countries) over the period 1980-2003 (pooled in two twelve-years periods) provides supportive results. Moreover, the data suggest that terms-of-trade instability affects democracy through income instability. These results are robust to alternative specifications and to the use of different measures of aid intensity and democracy.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 6 (2008)
    Issue (Month): 41 ()
    Pages: 1-16

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    Handle: RePEc:ebl:ecbull:eb-08f40024

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    1. Samuel GUERINEAU & Gérard CHAMBAS & Jean-François BRUN, 2008. "Aide et mobilisation fiscale dans les pays en développement," Working Papers 200812, CERDI.
    2. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
    3. Collier, Paul & Goderis, Benedikt, 2008. "Does Aid Mitigate External Shocks?," Working Paper Series DP2008/06, World Institute for Development Economic Research (UNU-WIDER).
    4. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
    5. Lisa Chauvet & Patrick Guillaumont, 2009. "Aid, Volatility, and Growth Again: When Aid Volatility Matters and When it Does Not," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 452-463, 08.
    6. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    7. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
    8. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    9. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank.
    10. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 310-329, October.
    11. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Thaicharoen, Yunyong, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," CEPR Discussion Papers 3575, C.E.P.R. Discussion Papers.
    12. John F. Helliwell, 1992. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
    13. Goldsmith, Arthur A., 2001. "Foreign Aid and Statehood in Africa," International Organization, Cambridge University Press, vol. 55(01), pages 123-148, December.
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