The Effect of Leader’s Visits on Foreign Aid

This paper examines the effect of the number of visits by U.S. officials to a country, and the number of visits of the country’s leaders to the United States, on foreign aid. To achieve our objective, we compile novel variables that indicate the number of official visits from 1960-2015 from the historical archives of the U.S. State Department. To deal with potential endogeneity, we introduce novel instrumental variables for the official visits variables, namely aviation safety, capital distance, and urban distance. The 2SLS estimations provide evidence that the visits by the U.S. leaders to the country, and the visits of the country’s leaders to the United States, have a statistically significant negative effect on multilateral aid, but an insignificant effect on bilateral aid flows from the United States. This indicates that other donors take the visits by U.S. Presidents as a signal that the country does not need aid either due to the costly reception of the American dignitary or because they assume that the country will be able to secure aid from the U.S. and will be less in need of their assistance. This also indicates that the costly official visits by the country’s leadership to the United States cause the donors to become reluctant to provide aid as these types of expenditure send a negative signal that the country is not administering its finances adequately to avoid the need for aid.