Foreign Aid, Political Instability, and Economic Growth
AbstractRelying on a simple endogenous growth model, this paper highlights a political instability effect as a potential explanation for why foreign aid is frequently ineffective with respect to economic performance. In the present framework, the role of the state is to fund institutions allowing for ongoing technology adoption and hence long-run growth. However, providing a self-interested government with additional resources to fill a possible ”financing gap” may not result in better institutions. More money in the hands of the regime fuels conflict over the distribution of the funds - and decreases the incumbent regime’s time horizon in office. With a shorter time horizon, it is less attractive to finance good institutions whose returns mainly accrue in the future. Panel data evidence points indeed to a sizable causal effect of foreign aid on political instability in the 1980s and 1990s.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 310.
Date of creation: Nov 2006
Date of revision:
Foreign aid; Economic growth; Political Instability; Institutions;
Find related papers by JEL classification:
- F35 - International Economics - - International Finance - - - Foreign Aid
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svensson, Jakob, 1997.
"When is foreign aid policy credible : aid dependence and conditionality,"
Policy Research Working Paper Series
1740, The World Bank.
- Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
- Svensson, Jakob, 1997. "When is Foreign Aid Policy Credible? - Aid Dependence and Conditionality," Seminar Papers 600, Stockholm University, Institute for International Economic Studies.
- Svensson, J., 1995. "When Is Foreign Aid Policy Credible? Aid Dependence and Conditionality," Papers 600, Stockholm - International Economic Studies.
- Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2004.
"The Effects of Financial Development on Convergence: Theory and Evidence,"
DEGIT Conference Papers
c009_021, DEGIT, Dynamics, Economic Growth, and International Trade.
- Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 173-222, January.
- Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2004. "The Effect of Financial Development on Convergence: Theory and Evidence," NBER Working Papers 10358, National Bureau of Economic Research, Inc.
- Howitt, Peter & Mayer-Foulkes, David & Aghion, Philippe, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," Scholarly Articles 4481509, Harvard University Department of Economics.
- Aghion, P. & Howitt, P. & Mayer-Foulkes, D., 2005. "The effect of financial development on convergence: theory and evidence," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001.
"On the Empirics of Foreign Aid and Growth,"
EPRU Working Paper Series
03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
- Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
- C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 17-41.
- Unbreen Qayyum, 2013. "Institutional Quality, Conflict and Aid Dependency," PIDE-Working Papers 2013:94, Pakistan Institute of Development Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser).
If references are entirely missing, you can add them using this form.