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Foreign aid and political instability in resource-rich countries

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  • Ravetti, Chiara
  • Sarr, Mare
  • Swanson, Tim

Abstract

In this article we examine whether foreign aid and natural resources can act as a double curse on developing countries with poor governance. We hypothesize that affording external liquidity to dictators based on their resource wealth reduces the political incentives for long term investment and enhances the looting of the country and more frequent irregular exit of leaders from their office. We then examine the empirical evidence for such a link between international aid flows and government irregular turnover in resource-rich countries. We find that the interaction between natural resources and most forms of international aid combines with political instability in the case of non-democratic regimes. In turn, this combination of foreign aid, natural resources and political instability is associated with lower growth performance. Some types of less fungible aid (notably humanitarian) and aid grants that do not build indebtedness do not seem to have this effect.

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  • Ravetti, Chiara & Sarr, Mare & Swanson, Tim, 2018. "Foreign aid and political instability in resource-rich countries," Resources Policy, Elsevier, vol. 58(C), pages 277-294.
  • Handle: RePEc:eee:jrpoli:v:58:y:2018:i:c:p:277-294
    DOI: 10.1016/j.resourpol.2018.05.017
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    1. Qiaoqiao Liu & Zenggang Li, 2022. "Aid instability, aid effectiveness and economic growth," Development Policy Review, Overseas Development Institute, vol. 40(1), January.
    2. Gnangnon, Sèna Kimm, 2021. "Effect of Development Aid on Productive Capacities," EconStor Preprints 233973, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    Political instability; Foreign aid; Resource curse; Economic growth; Autocracy; Loans;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • F35 - International Economics - - International Finance - - - Foreign Aid

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