Aid Effectiveness and the Politics of Personalism

Abstract

This article examines how political institutions that provide an incentive to cultivate a personal vote condition the relationship between foreign aid and economic growth in developing country democracies. Politicians in aid-recipient countries with high levels of personalism are more likely to pursue corruption and target government spending to narrow constituencies. Because personalism affects these outcomes, it provides incentives to use foreign aid for politically motivated spending at the expense of investing foreign aid in growth-promoting public goods. Using panel data from 61 aid-recipient democracies from 1961 to 2001, the author finds that aid increases growth in democracies with less personalist institutions but decreases growth in countries with high personalism. The author also shows that personalism conditions the relationship between aid and the composition of government spending: Aid increases spending on public goods (relative to narrow, particularistic goods) in countries with low personalism but has the opposite effect in highly personalist countries.