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Foreign Aid and Enlightened Leaders

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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.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 10.05.

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Length: 47 pages
Date of creation: Dec 2010
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Handle: RePEc:szg:worpap:1005

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  1. Bjørnskov, Christian, 2010. "Do elites benefit from democracy and foreign aid in developing countries?," Journal of Development Economics, Elsevier, Elsevier, vol. 92(2), pages 115-124, July.
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  1. Bruges ulandshjælp til at favorisere bestemte steder?
    by Christian Bjørnskov in Punditokraterne on 2010-12-05 17:44:58
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Cited by:
  1. González, Mariano & Larrú, José María, 2012. "Egalitarian aid. The impact of aid on Latin American inequality," MPRA Paper 41660, University Library of Munich, Germany.
  2. 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.
  3. Jonathan R. W. Temple & Nicolas Van de Sijpe, 2014. "Foreign Aid and Domestic Absorption," CSAE Working Paper Series 2014-01, Centre for the Study of African Economies, University of Oxford.
  4. Robin Burgess & Remi Jedwab & Edward Miguel & Ameet Morjaria & Gerard Padró i Miquel, 2013. "The Value of Democracy: Evidence from Road Building in Kenya," NBER Working Papers 19398, National Bureau of Economic Research, Inc.
  5. Hannes Öhler & Peter Nunnenkamp, 2013. "Needs-Based Targeting or Favoritism? The Regional Allocation of Multilateral Aid within Recipient Countries," Kiel Working Papers 1838, Kiel Institute for the World Economy.
  6. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, Elsevier, in: Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779 Elsevier.
  7. Dominic Rohner & Mathias Thoenig & Fabrizio Zilibotti, 2011. "Seeds of distrust: Conflict in Uganda," ECON - Working Papers, Department of Economics - University of Zurich 054, Department of Economics - University of Zurich.

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