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Geopolitics, Aid and Growth

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  • Dreher, Axel
  • Eichenauer, Vera
  • Gehring, Kai

Abstract

We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test whether the effect of aid on economic growth is reduced by the share of years a country has served on the United Nations Security Council (UNSC) in the period the aid has been committed, which provides quasi-random variation in aid. Our results show that the relationship of aid with growth is significantly lower when aid has been committed during a country’s tenure on the UNSC. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are inadequate as instruments for overall aid, raising doubts about a large number of results in the aid effectiveness literature.

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  • Dreher, Axel & Eichenauer, Vera & Gehring, Kai, 2014. "Geopolitics, Aid and Growth," Working Papers 0575, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0575
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    More about this item

    Keywords

    aid effectiveness; economic growth; politics and aid; United Nations Security Council membership; political instruments;
    All these keywords.

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

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