IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp18698.html

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
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp18698.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nathan Nunn & Nancy Qian, 2014. "US Food Aid and Civil Conflict," American Economic Review, American Economic Association, vol. 104(6), pages 1630-1666, June.
    2. Alberto Abadie & Susan Athey & Guido W Imbens & Jeffrey M Wooldridge, 2023. "When Should You Adjust Standard Errors for Clustering?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(1), pages 1-35.
    3. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    4. Bomprezzi, Pietro & Dreher, Axel & Fuchs, Andreas & Hailer, Teresa & Kammerlander, Andreas & Kaplan, Lennart & Marchesi, Silvia & Masi, Tania & Perlik, Kerstin & Robert, Charlotte, 2024. "Wedded to Prosperity? Spousal Favoritism in Foreign Aid and Regional Development," CEPR Discussion Papers 18878, Centre for Economic Policy Research.
    5. Briggs, Ryan C., 2017. "Does Foreign Aid Target the Poorest?," International Organization, Cambridge University Press, vol. 71(1), pages 187-206, January.
    6. Isaksson, Ann-Sofie & Kotsadam, Andreas, 2018. "Chinese aid and local corruption," Journal of Public Economics, Elsevier, vol. 159(C), pages 146-159.
    7. Bommer, Christian & Dreher, Axel & Perez-Alvarez, Marcello, 2022. "Home bias in humanitarian aid: The role of regional favoritism in the allocation of international disaster relief," Journal of Public Economics, Elsevier, vol. 208(C).
    8. Dave Donaldson & Adam Storeygard, 2016. "The View from Above: Applications of Satellite Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 171-198, Fall.
    9. Jean-François Maystadt & Olivier Ecker, 2014. "Extreme Weather and Civil War: Does Drought Fuel Conflict in Somalia through Livestock Price Shocks?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(4), pages 1157-1182.
    10. Dreher, Axel & Fuchs, Andreas & Langlotz, Sarah, 2019. "The effects of foreign aid on refugee flows," European Economic Review, Elsevier, vol. 112(C), pages 127-147.
    11. J. Vernon Henderson & Adam Storeygard & David N. Weil, 2012. "Measuring Economic Growth from Outer Space," American Economic Review, American Economic Association, vol. 102(2), pages 994-1028, April.
    12. Tahir Andrabi & Jishnu Das, 2017. "In Aid We Trust: Hearts and Minds and the Pakistan Earthquake of 2005," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 371-386, July.
    13. Benjamin Crost & Joseph Felter & Patrick Johnston, 2014. "Aid under Fire: Development Projects and Civil Conflict," American Economic Review, American Economic Association, vol. 104(6), pages 1833-1856, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dreher, Axel & Lang, Valentin & Reinsberg, Bernhard, 2024. "Aid effectiveness and donor motives," World Development, Elsevier, vol. 176(C).
    2. Jung, Woojin, 2023. "Mapping community development aid: Spatial analysis in Myanmar," World Development, Elsevier, vol. 164(C).
    3. Bluhm, Richard & Dreher, Axel & Fuchs, Andreas & Parks, Bradley C. & Strange, Austin M. & Tierney, Michael J., 2025. "Connective financing: Chinese infrastructure projects and the diffusion of economic activity in developing countries," Journal of Urban Economics, Elsevier, vol. 145(C).
    4. Zhang, Yu & Xu, Zhicheng Phil & Kibriya, Shahriar, 2021. "The long-term effects of the slave trade on political violence in Sub-Saharan Africa," Journal of Comparative Economics, Elsevier, vol. 49(3), pages 776-800.
    5. Lee, Yong Suk, 2018. "International isolation and regional inequality: Evidence from sanctions on North Korea," Journal of Urban Economics, Elsevier, vol. 103(C), pages 34-51.
    6. van der Weide, Roy & Blankespoor, Brian & Elbers, Chris & Lanjouw, Peter, 2024. "How accurate is a poverty map based on remote sensing data? An application to Malawi," Journal of Development Economics, Elsevier, vol. 171(C).
    7. Zhang, Liyunpeng & Li, Xiao & Zhuang, Yuhang & Li, Ningning, 2022. "World Bank aid and local multidimensional poverty in Sub-Saharan Africa," Economic Modelling, Elsevier, vol. 117(C).
    8. Valentin Lindlacher & Gustav Pirich, 2024. "The Impact of China’s “Stadium Diplomacy” on Local Economic Development in Sub-Saharan Africa," CESifo Working Paper Series 10893, CESifo.
    9. Raphael J. Nawrotzki & Verena Gantner & Jana Balzer & Thomas Wencker & Sabine Brüntrup-Seidemann, 2022. "Strategic Allocation of Development Projects in Post-Conflict Regions: A Gender Perspective for Colombia," Sustainability, MDPI, vol. 14(4), pages 1-26, February.
    10. Hu, Zhi-An & Li, Jinghong & Nie, Zhuo, 2023. "Long Live friendship? The long-term impact of Soviet aid on Sino-Russian trade," Journal of Development Economics, Elsevier, vol. 164(C).
    11. Eugen Dimant & Tim Krieger & Daniel Meierrieks, 2024. "Paying Them to Hate US: The Effect of US Military Aid on Anti-American Terrorism, 1968–2018," The Economic Journal, Royal Economic Society, vol. 134(663), pages 2772-2802.
    12. Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley C. & Raschky, Paul A. & Tierney, Michael J., 2021. "Is Favoritism a Threat to Chinese Aid Effectiveness? A Subnational Analysis of Chinese Development Projects," World Development, Elsevier, vol. 139(C).
    13. Martin-Shields, Charles P. & Stojetz, Wolfgang, 2019. "Food security and conflict: Empirical challenges and future opportunities for research and policy making on food security and conflict," World Development, Elsevier, vol. 119(C), pages 150-164.
    14. Gianmarco León-Ciliotta & Dijana Zejcirovic & Fernando Fernandez, 2025. "Policymaking, Trust, and the Demand for Public Services: Evidence from a Mass Sterilization Campaign," American Economic Journal: Economic Policy, American Economic Association, vol. 17(1), pages 181-215, February.
    15. Mandon, Pierre & Woldemichael, Martha Tesfaye, 2023. "Has Chinese aid benefited recipient countries? Evidence from a meta-regression analysis," World Development, Elsevier, vol. 166(C).
    16. Siri Aas Rustad & Kristian Hoelscher & Andreas Kotsadam & Gudrun Østby & Henrik Urdal, 2024. "Does development aid reach politically excluded groups? A Disaggregated Study of the Location of Aid in Sub‐Saharan Africa," Development Policy Review, Overseas Development Institute, vol. 42(3), May.
    17. Lindlacher, Valentin & Pirich, Gustav, 2025. "The Impact of China’s “Stadium Diplomacy” on Local Economic Development in Sub-Saharan Africa," World Development, Elsevier, vol. 185(C).
    18. Baehr, Christian & BenYishay, Ariel & Parks, Brad, 2023. "Highway to the forest? Land governance and the siting and environmental impacts of Chinese government-funded road building in Cambodia," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    19. Iacoella, Francesco & Martorano, Bruno & Metzger, Laura & Sanfilippo, Marco, 2021. "Chinese official finance and political participation in Africa," European Economic Review, Elsevier, vol. 136(C).
    20. Dreher, Axel, 2025. "When aid misses the target: competing objectives, new classifications, and smarter delivery," World Development, Elsevier, vol. 196(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp18698. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Fallak (email available below). General contact details of provider: https://edirc.repec.org/data/izaaalu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.