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On the potential of foreign aid to protect democracy against instability from trade

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  • Thierry Kangoye

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we examine the effects of a major source of instability, namely terms of trade instability on the quality of democracy, and we investigate whether foreign aid can dampen them. 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 democracy. An empirical investigation with data from 71 developing countries over the period 1980-2003 provides supportive results. Moreover, the data suggest that terms of trade instability affects democracy through income instability.

Suggested Citation

  • Thierry Kangoye, 2011. "On the potential of foreign aid to protect democracy against instability from trade," Working Papers halshs-00556697, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00556697 Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00556697
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    References listed on IDEAS

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    1. Guillaumont, Patrick & Laajaj, Rachid, 2006. "When instability increases the effectiveness of aid projects," Policy Research Working Paper Series 4034, The World Bank.
    2. Martin Mühleisen & Dhaneshwar Ghura & Roger Nord & Michael T. Hadjimichael & E. Murat Ucer, 1995. "Sub-Saharan Africa; Growth, Savings, and Investment, 1986-93," IMF Occasional Papers 118, International Monetary Fund.
    3. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    4. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April.
    5. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    6. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    7. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    8. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
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    Keywords

    democracy; foreign aid; terms of trade instability;

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