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Breaking the wave of democracy: The effect of foreign aid on the incumbent's re-election probability

By Blanca MORENO DODSON, Grégoire Rota-Graziosi and Clémence Vergne

Abstract

We investigate whether foreign aid affects the probability of incumbent's re-election and then the Schumpeterian quality of democracy in developing countries. We present a simple theoretical framework, which captures the competitiveness of elections through the Tullock's approach based on the Contest Success Function. We obtain an ambiguous theoretical effect of foreign aid on the incumbent probability to be reelected: Foreign aid increases the prize of the electoral contest stimulating the challenger to increase his campaign effort; But, the incumbent may divert part of the aid, improving his advantage and reducing political competition. We investigate empirically this effect using panel data from 60 aid-recipient countries between 1980 and 2005. Our analysis shows that foreign aid increases the incumbent's re-election probabilities. However, this effect depends on recipients' democratic level and on the nature of foreign aid, consistently with our theoretical framework. While financial aid increases the probability of incumbent's re-election, political aid, especially through assistances in developing competitive electoral systems, reduces this probability

Topics: Incumbent's advantage, Foreign aid, Elections, JEL: D - Microeconomics/D.D7 - Analysis of Collective Decision-Making/D.D7.D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior, JEL: F - International Economics/F.F3 - International Finance/F.F3.F35 - Foreign Aid, JEL: O - Economic Development, Innovation, Technological Change, and Growth/O.O1 - Economic Development/O.O1.O11 - Macroeconomic Analyses of Economic Development, [SHS.ECO]Humanities and Social Sciences/Economics and Finance
Publisher: HAL CCSD
Year: 2012
OAI identifier: oai:HAL:halshs-00722375v1

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