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Aiding economic freedom: Exploring the role of political institutions

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  • Dutta, Nabamita
  • Williamson, Claudia R.

Abstract

Can foreign aid promote economic freedom? The existing literature does not provide a conclusive answer. Using a panel of 108 countries from 1971 to 2010, we provide insight to this discussion by examining aid's impact on economic freedom conditional on the quality of political institutions. We find some evidence suggesting that aid can improve economic freedom when given to democracies, but it may decrease it in autocracies. Also, aid given to entrenched regimes may reduce economic freedom. We illustrate that the results are sensitive to model selection, choice of controls, time period sample, and measurement of aid. Our results have important policy implications. Most countries that ‘need’ aid do not have healthy political institutions. As such, aid is less likely to have a positive impact on economic freedom, partially explaining the contradictory findings in the literature. This also highlights the difficulty of finding a top-down solution to institutional improvements.

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  • Dutta, Nabamita & Williamson, Claudia R., 2016. "Aiding economic freedom: Exploring the role of political institutions," European Journal of Political Economy, Elsevier, vol. 45(S), pages 24-38.
    • Handle: RePEc:eee:poleco:v:45:y:2016:i:s:p:24-38
    DOI: 10.1016/j.ejpoleco.2016.07.009
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    Cited by:

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    3. Pradhan, Rudra P. & Arvin, Mak B. & Nair, Mahendhiran S. & Bennett, Sara E., 2023. "Does foreign aid affect innovation and institutional quality in middle-income countries?," Evaluation and Program Planning, Elsevier, vol. 100(C).
    4. Gautam, Durga P., 2021. "Does international migration impact economic institutions at home?," European Journal of Political Economy, Elsevier, vol. 69(C).
    5. Dzhumashev, Ratbek & Hailemariam, Abebe, 2021. "Foreign aid and the quality of economic institutions," European Journal of Political Economy, Elsevier, vol. 68(C).
    6. Miraj ul Haq & Nuzhat Shamim & Muhammad Luqman, 2020. "Foreign Aid, Political Institutions and Economic Freedom: Empirical Evidence from Selected Developing Countries," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 25(1), pages 153-178, Jan-June.
    7. Anand Sharma & Vipin Sharma & Shekhar Tokas, 2022. "Institutional quality and health outcomes: evidence from the EU countries," Economics and Business Letters, Oviedo University Press, vol. 11(2), pages 70-78.
    8. Dutta, Nabamita & Maus, Haley, 2021. "Share Of Women in Parliament and Health and Education Outcomes," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(3), pages 87-110, September.
    9. Justin Callais & Andrew T. Young, 2021. "Does constitutional entrenchment matter for economic freedom?," Contemporary Economic Policy, Western Economic Association International, vol. 39(4), pages 808-830, October.
    10. Robert A. Lawson & Ryan Murphy & Benjamin Powell, 2020. "The Determinants Of Economic Freedom: A Survey," Contemporary Economic Policy, Western Economic Association International, vol. 38(4), pages 622-642, October.
    11. Saha, Shrabani & Beladi, Hamid & Kar, Saibal, 2021. "Corruption control, shadow economy and income inequality: Evidence from Asia," Economic Systems, Elsevier, vol. 45(2).
    12. Sulin Sardoschau & Alexandra Jarotschkin, 2023. "Chinese Aid in Africa: Attitudes and Conflict," Rationality and Competition Discussion Paper Series 451, CRC TRR 190 Rationality and Competition.
    13. Heckelman, Jac C & Wilson, Bonnie, 2023. "Aid, Reform, and Interest Groups," MPRA Paper 118182, University Library of Munich, Germany.
    14. Ryan H. Murphy, 2023. "Stefon Dercon: Gambling on development: Why some countries win and others lose. London: Hurst, 2022. 398 pages. USD $34.95 (hardback)," Public Choice, Springer, vol. 196(1), pages 217-222, July.
    15. Adam, Antonis & Tsarsitalidou, Sofia, 2022. "The effect of international development association's (IDA) aid on conflict. A fuzzy regression discontinuity approach," European Journal of Political Economy, Elsevier, vol. 74(C).
    16. Arif, Imran & Hall, Joshua C., 2019. "International flows of people and institutional change," European Journal of Political Economy, Elsevier, vol. 58(C), pages 276-288.
    17. Pradhan, Rudra P. & Bennett, Sara E. & Nair, Mahendhiran S. & Arvin, Mak B., 2023. "Does foreign aid procurement in resource-rich countries depend on these countries’ financial development and institutional quality? Evidence from PVECM and quantile-on-quantile regression," Socio-Economic Planning Sciences, Elsevier, vol. 88(C).
    18. Dutta, Nabamita & Jana, Dipparna & Kar, Saibal, 2020. "Does state-level per capita income affect juvenile delinquency? An empirical analysis for Indian states," Economic Modelling, Elsevier, vol. 87(C), pages 109-120.

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