Aid Is Not Oil: Donor Utility, Heterogeneous Aid, and the Aid-Democratization Relationship

Abstract

© 2015 The IO Foundation.Recent articles conclude that foreign aid, like other nontax resources, inhibits political change in authoritarian regimes. This article challenges both the negative political effects of aid and the similarity of aid to other resources. It develops a model incorporating changing donor preferences and the heterogeneity of foreign aid. Consistent with the model's predictions, an empirical test for the period 1973-2010 shows that, on average, the negative relationship between aid and the likelihood of democratic change is confined to the Cold War period. However, in the post-Cold War period, nondemocratic recipients of particular strategic importance can still use aid to thwart change. The relationship between oil revenue and democratic change does not follow the same pattern over time or across recipients. This supports the conclusion that aid has different properties than other, fungible, resources.