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Aid and Democracy Redux

This paper uses Freedom House ratings to assess the impact of foreign aid on democracy. We employ an interval regression to account for Freedom House's method of rating countries. A cross-sectional analysis examining the long run effect of aid on democracy in 122 countries between 1972 and 2011 finds a significant positive relationship that survives various tests for endogeneity. A short run annual panel analysis of 156 countries between 1985 and 2011 explores whether aid operates through leverage and conditionality. We present evidence that i) donors allocate aid in response to democratization and ii) recipient countries respond to this incentive for democratic reform. Our identification strategy relies on the reduced importance of democratization in the allocation of aid to geopolitically important countries.

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File URL: http://repec.library.villanova.edu/workingpapers/VSBEcon23.pdf
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Paper provided by Villanova School of Business Department of Economics and Statistics in its series Villanova School of Business Department of Economics and Statistics Working Paper Series with number 23.

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Date of creation: Jun 2013
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Handle: RePEc:vil:papers:23
Contact details of provider: Web page: http://www.villanova.edu/business/facultyareas/economics/
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  1. Irene Vlachaki & Sarantis Kalyvitis, 2011. "When does more aid imply less democracy? An empirical examination," DEOS Working Papers 1125, Athens University of Economics and Business.
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  5. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
  6. Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The curse of aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194, September.
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  8. Minoiu, Camelia & Reddy, Sanjay G., 2010. "Development aid and economic growth: A positive long-run relation," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 27-39, February.
  9. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  10. Mark B. Stewart, 1982. "On Least Squares Estimation When the Dependent Variable is Grouped," Working Papers 539, Princeton University, Department of Economics, Industrial Relations Section..
  11. Sarantis Kalyvitis & Irene Vlachaki, 2010. "Democratic Aid And The Democratization Of Recipients," Contemporary Economic Policy, Western Economic Association International, vol. 28(2), pages 188-218, 04.
  12. Axel Dreher & Andreas Fuchs, 2011. "Rogue Aid? The Determinants of China’s Aid Allocation," Working Papers CEB 11-035, ULB -- Universite Libre de Bruxelles.
  13. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2006. "Does Aid for Education Educate Children? Evidence from Panel Data," Kiel Working Papers 1290, Kiel Institute for the World Economy.
  14. Morrison, Kevin M., 2009. "Oil, Nontax Revenue, and the Redistributional Foundations of Regime Stability," International Organization, Cambridge University Press, vol. 63(01), pages 107-138, January.
  15. Nabamita Dutta & Peter T. Leeson & Claudia R. Williamson, 2013. "The Amplification Effect: Foreign Aid's Impact on Political Institutions," Kyklos, Wiley Blackwell, vol. 66(2), pages 208-228, 05.
  16. Goldsmith, Arthur A., 2001. "Foreign Aid and Statehood in Africa," International Organization, Cambridge University Press, vol. 55(01), pages 123-148, December.
  17. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  18. Fielding, A., 1998. "Why Use Arbitrary Points Scores: Ordered Categories in Models of Educational Progress," Discussion Papers 98-23, Department of Economics, University of Birmingham.
  19. Giulia BETTIN & Riccardo LUCCHETTI, 2010. "Interval Regression Models with;Endogenous Explanatory Variables," Working Papers 339, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  20. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
  21. Dietrich, Simone & Wright, Joseph, 2012. "Foreign Aid and Democratic Development in Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  22. Michael A. Clemens & Steven Radelet & Rikhil R. Bhavnani & Samuel Bazzi, 2012. "Counting Chickens when they Hatch: Timing and the Effects of Aid on Growth," Economic Journal, Royal Economic Society, vol. 122(561), pages 590-617, 06.
  23. Kevin Morrison, 2013. "Membership no longer has its privileges: The declining informal influence of Board members on IDA lending," The Review of International Organizations, Springer, vol. 8(2), pages 291-312, June.
  24. Bermeo, Sarah Blodgett, 2011. "Foreign Aid and Regime Change: A Role for Donor Intent," World Development, Elsevier, vol. 39(11), pages 2021-2031.
  25. José Cheibub & Jennifer Gandhi & James Vreeland, 2010. "Democracy and dictatorship revisited," Public Choice, Springer, vol. 143(1), pages 67-101, April.
  26. Birchler, Kassandra & Michaelowa, Katharina, 2013. "Making aid work for education in developing countries: An analysis of aid effectiveness for primary education coverage and quality," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  27. World Bank, 2012. "World Development Indicators 2012," World Bank Publications, The World Bank, number 6014, March.
  28. David A Armstrong II, 2011. "Stability and change in the Freedom House political rights and civil liberties measures," Journal of Peace Research, Peace Research Institute Oslo, vol. 48(5), pages 653-662, September.
  29. Alexander Libman & Anastassia Obydenkova, 2013. "Informal governance and participation in non-democratic international organizations," The Review of International Organizations, Springer, vol. 8(2), pages 221-243, June.
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