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

  • Thierry Kangoye

    ()

    (CERDI-CNRS / Universite d'Auvergne)

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    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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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume6/EB-08F40024A.pdf
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    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. Alberto Alesina & Beatrice Weder, 1999. "Do Corrupt Governments Receive Less Foreign Aid?," NBER Working Papers 7108, National Bureau of Economic Research, Inc.
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    3. Chauvet, Lisa & Guillaumont, Patrick, 2009. "Aid, volatility, and growth again : when aid volatility matters and when it does not," Economics Papers from University Paris Dauphine 123456789/5400, Paris Dauphine University.
    4. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
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    6. Paul Collier & Benedikt Goderis, 2010. "Does Aid Mitigate External Shocks?," Working Papers id:3216, eSocialSciences.
    7. Goldsmith, Arthur A., 2001. "Foreign Aid and Statehood in Africa," International Organization, Cambridge University Press, vol. 55(01), pages 123-148, December.
    8. 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.
    9. Jean-François Brun & Gérard Chambas & Samuel Guerineau, 2011. "Aide et mobilisation fiscale dans les pays en développement," Working Papers halshs-00556804, HAL.
    10. Daron Acemoglu & Simon Johnson & James Robinson & Yunyong Thaicharoen, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," NBER Working Papers 9124, National Bureau of Economic Research, Inc.
    11. 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.
    12. John F. Helliwell, 1992. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
    13. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank.
    14. Paul Collier & Benedikt Goderis, 2007. "Does Aid Mitigate External Shocks?," Economics Series Working Papers WPS/2007-18, University of Oxford, Department of Economics.
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