The Curse of Aid

Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the "curse of natural resources" literature. In this paper, we discuss this effect and document its magnitude. Using panel data for 108 recipient countries...

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Main Authors: Djankov, Simeon, Montalvo, Jose G., Reynal-Querol, Marta
Format: Journal Article
Language:EN
Published: 2012
Subjects:
Online Access:http://hdl.handle.net/10986/5663
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recordtype oai_dc
spelling okr-10986-56632021-04-23T14:02:23Z The Curse of Aid Djankov, Simeon Montalvo, Jose G. Reynal-Querol, Marta Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D720 Foreign Aid F350 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 International Linkages to Development Role of International Organizations O190 Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the "curse of natural resources" literature. In this paper, we discuss this effect and document its magnitude. Using panel data for 108 recipient countries in the period 1960-1999, we find that foreign aid has a negative impact on institutions. In particular, if the foreign aid over GDP that a country receives over a period of 5 years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison, we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil. 2012-03-30T07:33:55Z 2012-03-30T07:33:55Z 2008 Journal Article Journal of Economic Growth 13814338 http://hdl.handle.net/10986/5663 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language EN
topic Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D720
Foreign Aid F350
Formal and Informal Sectors
Shadow Economy
Institutional Arrangements O170
International Linkages to Development
Role of International Organizations O190
spellingShingle Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D720
Foreign Aid F350
Formal and Informal Sectors
Shadow Economy
Institutional Arrangements O170
International Linkages to Development
Role of International Organizations O190
Djankov, Simeon
Montalvo, Jose G.
Reynal-Querol, Marta
The Curse of Aid
relation http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the "curse of natural resources" literature. In this paper, we discuss this effect and document its magnitude. Using panel data for 108 recipient countries in the period 1960-1999, we find that foreign aid has a negative impact on institutions. In particular, if the foreign aid over GDP that a country receives over a period of 5 years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison, we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil.
format Journal Article
author Djankov, Simeon
Montalvo, Jose G.
Reynal-Querol, Marta
author_facet Djankov, Simeon
Montalvo, Jose G.
Reynal-Querol, Marta
author_sort Djankov, Simeon
title The Curse of Aid
title_short The Curse of Aid
title_full The Curse of Aid
title_fullStr The Curse of Aid
title_full_unstemmed The Curse of Aid
title_sort curse of aid
publishDate 2012
url http://hdl.handle.net/10986/5663
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