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The Political Economy of Foreign Aid and Growth:Theory and Evidence

Author

Listed:
  • Sultan Mehmood

    (University of Paris - IX)

  • Avner Seror

    (Chapman University)

Abstract

In this paper, we demonstrate that even when foreign aid is used to fund patronage, it may still have a positive - and significant - effect on economic growth in developing countries. First, we present a theory that formalizes the effect of aid on economic growth and patronage. Next, we provide evidence from Pakistan consistent with the predictions of the model that foreign aid increases economic growth, despite being used for patronage. The identification strategy we propose allows us to provide causal evidence for the predictions of the model.

Suggested Citation

  • Sultan Mehmood & Avner Seror, 2019. "The Political Economy of Foreign Aid and Growth:Theory and Evidence," Working Papers 19-10, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:19-10
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/268/
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    More about this item

    Keywords

    Foreign aid; Economic growth; Political Economy; Patronage;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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