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Why foreign aid does (not) improve democracy?

  • Audrey Menard
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    Foreign aid has become closely connected to the development of democracy since the nineties. This paper analyses the democracy effects of aid accounting for this change in donors’ criteria. This approach contributes to the literature by analysing how the kind of donor allocating aid flows influences the effect of aid on democ- racy. I estimate a dynamic panel data model using data from 52 African countries between 1997 and 2008. I find that aid favours democracy. However when consider- ing the kind of donor, I observe that while bilateral aid does not foster democracy, multilateral aid favours democracy. Robustness tests confirm these findings.

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    File URL: http://www.beta-umr7522.fr/productions/publications/2012/2012-19.pdf
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    Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2012-19.

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    Date of creation: 2012
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    Handle: RePEc:ulp:sbbeta:2012-19
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    1. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    2. Bhattacharyya, Sambit, 2012. "Trade liberalization and institutional development," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 253-269.
    3. Jac C. Heckelman, 2010. "Aid and Democratization in the Transition Economies," Kyklos, Wiley Blackwell, vol. 63(4), pages 558-579, November.
    4. Kalyvitis, Sarantis & Vlachaki, Irene, 2012. "When does more aid imply less democracy? An empirical examination," European Journal of Political Economy, Elsevier, vol. 28(1), pages 132-146.
    5. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," Department of Economics - Working Papers Series 1047, The University of Melbourne.
    6. Timothy Besley & Masayuki Kudamatsu, 2006. "Health and Democracy," American Economic Review, American Economic Association, vol. 96(2), pages 313-318, May.
    7. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank.
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