Foreign Aid and International Support as a Gift Exchange

Abstract

Regressions on data from 1948 to 1979 indicate that the US and the Soviet Union used foreign aid to stimulate international political support from the receivers of aid and that aid receivers allocated their political support to stimulate aid from these donors. The regressions are based on a game theoretical model in which aid donors provide aid to reach foreign policy goals and in which aid receivers in return give political support to the donors so as to raise foreign aid. With foreign policy ambitions, aid should be given the countries with low GDP levels, while if altruistic considerations determine aid, countries with low levels of GDP per capita should be the beneficiaries. Since foreign aid to some extent was the result of cold war rivalry, the changes in international relations which occurred with the fall of the Soviet Union, should lower total foreign aid.