Abstract
What happens to foreign aid when developing countries get richer? In this paper, I first show that, since the mid-1990s, many recipients of official development assistance have been experiencing sustained economic progress and that they are projected to do so. I proceed with presenting historical evidence as well as estimates of the quantitative implications of increasing GDP per capita for aid allocation. Special focus is given to the under-researched phenomenon of “aid graduation”, i.e. the point where developing countries cease to be eligible for public aid giving in accordance with OECD standards. Finally, I examine broader politico-economic implications of graduation for foreign aid as a redistributive institution and for our understanding of aid.
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