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Geopolitics, Aid and Growth

Dreher, Axel ; Eichenauer, Vera ; Gehring, Kai

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We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test whether the effect of aid on economic growth is reduced by the share of years a country has served on the United Nations Security Council (UNSC) in the period the aid has been committed, which provides quasi-random variation in aid. Our results show that the relationship of aid with growth is significantly lower when aid has been committed during a country’s tenure on the UNSC. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are inadequate as instruments for overall aid, raising doubts about a large number of results in the aid effectiveness literature.

Item Type: Working paper
Series Name: Discussion Paper Series, University of Heidelberg, Department of Economics
Volume: 0575
Place of Publication: Heidelberg
Date Deposited: 21 Oct 2014 09:58
Date: October 2014
Number of Pages: 47
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: aid effectiveness, economic growth, politics and aid, United Nations Security Council membership, political instruments
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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