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The Political Economy of Foreign Aid Effectiveness

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  • Ieva Skarda

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.

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  • Ieva Skarda, 2016. "The Political Economy of Foreign Aid Effectiveness," Discussion Papers 16/12, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:16/12
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    Keywords

    Foreign aid; Aid effectiveness; Growth; Inequality; Contest; Elite;
    All these keywords.

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