Why Are Developed Countries Giving Aid to India?

Abstract

India is the recipient of substantial aid flows but also a nuclear-armed power and an emerging donor. Why have developed countries provided aid to one of the fastest-growing major economies in the world? Answering this question requires understanding the underlying determinants of these aid flows. Using data from 1960 to 2015, the domestic conditions of India and the external conditions of donors are empirically explored with time-series analysis and panel-data analysis. We find that during the Cold War India received more foreign aid from donors with a larger volume of trade and arms transfers, but from 2000 to 2015 the effect of arms transfers declined while countries with high trade volumes continued to give more aid. Although these findings broadly support the realist interpretation of aid, we conclude that post–Cold War structural shifts in the international aid regime and defense industries need to be considered by future researchers.