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Foreign Aid and Enlightened Leaders

Author

Listed:
  • Roland Hodler
  • Paul Raschky

Abstract

To study whether foreign aid fuels personal, regional and ethnic favoritism, we use satellite data on nighttime light for any region in any aid-recipient country, and we determine for each year and each country the region in which the current political leader was born. Having a panel with 22,850 regions in 91 aid recipient countries with yearly observations from 1992 to 2005, we compare the effect of foreign aid on nighttime light across regions. We find that in countries with poor political institutions, this effect is significantly higher in the region in which the current political leader was born than in other regions. This finding suggests that a disproportionate share of foreign aid ends up in the leader's birth region, and we argue that it supports the view that foreign aid fuels favoritism, broadly defined. We find no such difference in aid-recipient countries with sound political institutions.

Suggested Citation

  • Roland Hodler & Paul Raschky, 2010. "Foreign Aid and Enlightened Leaders," Monash Economics Working Papers 54-10, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2010-54
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/5410aidlighthodlerraschky.pdf
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    References listed on IDEAS

    as
    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 11855, December.
    3. Bjørnskov, Christian, 2010. "Do elites benefit from democracy and foreign aid in developing countries?," Journal of Development Economics, Elsevier, vol. 92(2), pages 115-124, July.
    4. World Bank, 2008. "World Development Indicators 2008," World Bank Publications - Books, The World Bank Group, number 28241, December.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Link between Political Centralization and Regional Inequalities in Myanmar
      by ecprpoliticaleconomy in Polidigwerkschdaeddle on 2014-11-14 21:53:42
    2. Bruges ulandshjælp til at favorisere bestemte steder?
      by Christian Bjørnskov in Punditokraterne on 2010-12-05 23:44:58

    Citations

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    Cited by:

    1. Temple, Jonathan & Van de Sijpe, Nicolas, 2017. "Foreign aid and domestic absorption," Journal of International Economics, Elsevier, vol. 108(C), pages 431-443.
    2. Robin Burgess & Remi Jedwab & Edward Miguel & Ameet Morjaria & Gerard Padró i Miquel, 2015. "The Value of Democracy: Evidence from Road Building in Kenya," American Economic Review, American Economic Association, vol. 105(6), pages 1817-1851, June.
    3. Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2013. "Seeds of distrust: conflict in Uganda," Journal of Economic Growth, Springer, vol. 18(3), pages 217-252, September.
    4. Verwimp, Philip, 2023. "Ethno-regional favoritism and the political economy of school test scores," Journal of Development Economics, Elsevier, vol. 165(C).
    5. Hannes Öhler & Peter Nunnenkamp, 2014. "Needs-Based Targeting or Favoritism? The Regional Allocation of Multilateral Aid within Recipient Countries," Kyklos, Wiley Blackwell, vol. 67(3), pages 420-446, August.
    6. repec:esx:essedp:729 is not listed on IDEAS
    7. Pelle Ahlerup & Ann-Sofie Isaksson, 2015. "Ethno-Regional Favouritism in Sub-Saharan Africa," Kyklos, Wiley Blackwell, vol. 68(2), pages 143-152, May.
    8. González, Mariano & Larrú, José María, 2012. "Egalitarian aid. The impact of aid on Latin American inequality," MPRA Paper 41660, University Library of Munich, Germany.
    9. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.
    10. Isaksson, Ann-Sofie & Bigsten, Arne, 2014. "Clientelism and ethnic divisions," Working Papers in Economics 598, University of Gothenburg, Department of Economics.
    11. repec:cep:stieop:45 is not listed on IDEAS
    12. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica [Aid and inequality relationship. Evidence and theoretical justification]," MPRA Paper 38857, University Library of Munich, Germany.
    13. Arcangelo Dimico, 2017. "Size Matters: The Effect of the Size of Ethnic Groups on Development," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(3), pages 291-318, June.

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    More about this item

    Keywords

    Foreign aid; Political leaders; Favoritism; Political institutions;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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