A new paper exploring the link between aid and governance, by Arinow, Carnegie and Marinov.
abstract
Does foreign aid promote good governance in recipient countries? We help arbitrate the debate over this question by leveraging a novel source of exogeneity: the rotating presidency of the Council of the European Union. We find that when a country’s former colonizer is the president of the Council of the European Union during the budget-making process, the country is allocated considerably more foreign aid than are countries whose former colonizer does not hold the presidency. Using instrumental variables estimation, we demonstrate that this aid has positive effects on multiple measures of human rights and governance, although the effects are short-lived after the shock to aid dissipates. We then disaggregate aid flows, present evidence for the causal mechanism at work, and offer directions for future advances.
h/t to Chris Blattman