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The Politics of Foreign Aid

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  • Wolfgang Mayer
  • Pascalis Raimondos-Møller

Abstract

Why do donor countries give foreign aid? The answers found in the literature are: (i) because donor countries care for recipient countries (e.g. altruism), and/or (ii) because there exist distortions that make the indirect gains from foreign aid (e.g. terms of trade effects) to be larger than the direct losses. This paper proposes a third answer to the above question, namely that aid is determined through the domestic political process of the donor country. The paper demonstrates how foreign aid affects the donor country’s income distribution and how, in a direct democracy, the majority of voters might benefit from foreign aid giving even though the country’s social welfare is reduced.

Suggested Citation

  • Wolfgang Mayer & Pascalis Raimondos-Møller, "undated". "The Politics of Foreign Aid," EPRU Working Paper Series 99-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:99-07
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    File URL: http://web.econ.ku.dk/epru/files/wp/wp9907.pdf
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    References listed on IDEAS

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    1. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    2. Robert E. Baldwin, 1982. "The Political Economy of Protectionism," NBER Chapters, in: Import Competition and Response, pages 263-292, National Bureau of Economic Research, Inc.
    3. Helpman, Elhanan, 1995. "Politics and Trade Policy," Foerder Institute for Economic Research Working Papers 275606, Tel-Aviv University > Foerder Institute for Economic Research.
    4. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    5. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    6. Jagdish N. Bhagwati, 1982. "Import Competition and Response," NBER Books, National Bureau of Economic Research, Inc, number bhag82-1.
    7. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    8. Lahiri, Sajal & Raimondos-Moller, Pascalis, 2000. "Lobbying by Ethnic Groups and Aid Allocation," Economic Journal, Royal Economic Society, vol. 110(462), pages 62-79, March.
    9. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-618, September.
    10. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    11. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494, Elsevier.
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    Cited by:

    1. Helen V. Milner & Dustin H. Tingley, 2010. "The Political Economy Of U.S. Foreign Aid: American Legislators And The Domestic Politics Of Aid," Economics and Politics, Wiley Blackwell, vol. 22(2), pages 200-232, July.
    2. Lahiri, Sajal & Raimondos-Moller, Paschalis, 1999. "Special interest politics and aid fungibility," Economics Discussion Papers 10001, University of Essex, Department of Economics.
    3. Ravinder Rena, 2013. "Is Foreign Aid Panacea for African Problems? The Case of Namibia," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 11(3 (Fall)), pages 223-241.

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    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid

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