Aid, Growth and Democracy

To the extent that aid is justified by the benefits to the recipient, rather than to the donor, it might be reasonably judged on two criteria: growth and poverty‐alleviation. We study the first of these criteria. We find that the long‐run growth impact of aid is conditional on the degree of political and civil liberties in the recipient country. Aid has a positive impact on growth in countries with an institutionalized check on governmental power; that is, in more democratic countries. The data suggest, however, that if this is not the case, aid will be used to satisfy the government’s own non‐productive goals. We also find that aid on average is not channeled to more democratic countries, even though there are large cross‐country differences between major donors.