Do Donors Punish Countries with Restrictive NGO Laws?: A Panel Study, 1993-2009

Abstract

Foreign aid contributes to about 10% of gross domestic product of developing countries. To deliver aid in recipient countries, western donors increasingly rely on non-governmental organizations (NGOs). Yet, since the mid-1990s, 39 developing countries have adopted laws restricting the inflow of foreign aid to NGOs operating in their jurisdictions. Have donors punished these recipient countries by withholding aid? In this paper, we offer an empirical test of the “NGO crackdown-foreign aid” link by examining a panel of 134 aid-receiving countries for the years 1993-2012. Our empirical analyses suggest that all else equal, the adoption of a restrictive NGO finance law is associated with 15% to 57% decline in foreign aid inflows (depending on the model specification) in years subsequent to the enactment of these restrictive laws. Our finding holds even after we control for a number of alternative explanations for foreign aid flows, including poverty levels, regime type, conflict, common language, freedom of the press and other basic civil liberties, trade, religion, and memberships in intergovernmental organizations. In sum, donors are punishing countries that have enacted restrictive NGOs laws with reduced aid flows.