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The Economic Impact of the USAID Shutdown

Author

Listed:
  • Nicolini, Marcella

    (University of Pavia)

  • Sabatini, Fabio

    (Sapienza University of Rome)

Abstract

On 28 January 2025 the second Trump administration issued a blanket stop-work order on the United States Agency for International Development (USAID), terminating the largest national bilateral aid programme worldwide. We use this natural experiment to estimate the impact of the aid cut on two outcomes in Africa: local economic activity, measured through nighttime light radiance around USAID project sites; and acute food insecurity, measured through the Integrated Food Security Phase Classification (IPC) at the subnational level. First, the cessation of USAID activities produced a sharp and significant decline in nighttime light radiance within 500 m to 10 km of project sites, attenuating monotonically and undetectable at 25 km. Second, areas more exposed to USAID humanitarian assistance saw relative increases in population in IPC Phase 3 (Crisis) or worse and Phase 4 (Emergency), with effects building over the first post-shock year, amplified in higher-vulnerability regions and approximately fourteen times larger in less democratic countries. Third, both effects are driven by humanitarian-aid cuts; the nightlight effect is also driven by productive-sector cuts.

Suggested Citation

  • Nicolini, Marcella & Sabatini, Fabio, 2026. "The Economic Impact of the USAID Shutdown," IZA Discussion Papers 18698, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18698
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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