Foreign Aid Flows Research Articles

Death by Law: Restrictive Regulations and INGO Numbers

Does the adoption of restrictive regulations shape numbers of non-governmental organizations? Since the late 1990s, governments around the world have been enacting new legal measures designed to suppress civil society’s functions and organizational space to carry out advocacy and politically oriented work. Scholars have investigated the impact of these new regulations on foreign aid flows, voting behavior, and on organizations, but to date, we lack a systematic analysis about the cross-national global effects of these legal restrictions on numbers of international non-governmental organizations (INGOs) in particular, since it is these organizations (and their funders) that have been heavily targeted. In this research note, we fill this gap through an empirical analysis of the effects of various types of restrictive laws on INGO numbers in 96 countries between 1992 and 2018 and find that advocacy restrictions result in a reduction of transnational human rights organizations but not numbers of INGOs.

Global Flow of Foreign Aid and Change in Recipients’ Local Labor Institutions

How does foreign aid affect recipient countries’ labor institutions? Extant empirical evidence is sparse due to ambiguous theoretical predictions and potential endogeneity issues. This study uses data detailing aid flow and institutional functions to mitigate such inconclusiveness and displays originality by constructing a concise theoretical framework in which foreign aid contributes to the improvement of the labor institutions in recipient countries through two mechanisms—economic growth purpose and expected aid attraction. The findings indicate that only aid to enhance local economic growth provides incentives to change domestic labor markets. Such effects have a more crucial influence on labor institutions of minimum wage, collective bargaining rights, and working hours than those related to hiring and firing regulations, mandated costs for worker dismissal, and conscription. For comparison with the actual aid level, we construct forecasted proxies to capture exogenous fluctuations in aid, determining that domestic labor markets can also change via a novel mechanism, as the recipient voluntarily mimics the funder’s labor policies in anticipation of receiving future aid, with exact amounts derived from the noninstitutional characteristics of pairs of bilateral recipient and giver economies. Therefore, we provide policy implications for the aid giver on how to secure a continued and increased aid flow and for the aid receivers on which aspects of reforming measures are most effective in enhancing the labor market regulations.

Greasing the revolving door: foreign aid, governance, and private capital flows

<p class="MsoNormal" style="margin-top: 8pt; line-height: 14pt; text-align: justify;"><span lang="EN-US" style="font-family: 'Cambria',serif; mso-fareast-font-family: '等线 Light'; mso-fareast-theme-font: major-fareast; mso-bidi-font-family: 'Times New Roman'; color: black; mso-themecolor: text1;">There is a considerable amount of debate on the impact of capital liberalization on economic performance. Using Three-Stage Least Squares (3SLS) estimation technique introduced by Zellner and Theil (1962), we synthesize studies on the determinants of governance and capital flows. We find evidence of a revolving door relationship. Foreign aid has a negative impact on governance and, thereby reduces capital inflows since bad governance hinders capital inflows. The need to fill the gap created by private capital outflows encourages inflow of foreign aid, which in turn harms governance. Therefore, capital liberalization could grease a revolving door and undermine economic development in the aid receiving countries.</span></p>

Assessing economic effects of foreign aid and capital flows on real economic growth

The study sought to investigate the effect of foreign aid and capital flow on real economic growth for the SADC region. Eleven member states of the SADC region are selected for analysis based on data availability. In the study, foreign aid is represented by official development assistance (ODA), external debt (EXTD), and debt service cost (DSC) while the inflow of foreign direct investment represents capital flow (FDI). Annual percentage growth of per capita Gross Domestic Product (GDPpc) is used as a proxy of real economic growth. Trade balance (TRO) is included in the model regression as a control variable. The study employed panel econometric models. The results of panel ARDL indicate that ODA and FDI were found to have a negligible effect on real growth in the short run but contribute positively and significantly in the long run. This revelation supports the view that ODA and FDI are essential determinants of growth. On the other hand, EXTD together with its associated costs was found to have a detrimental effect both in the short run and long run. Based on the results of the study, the authors put forward the following policy recommendations for the SADC region: most importantly, there ought to be effective management of external debt by SADC countries to reduce their overdependency on external debt for their domestic needs. Given the positive effect of FDI in the region, the SADC region needs to intensify its efforts in devising measures that will attract foreign investors to the region which among others include pursuing inclusive and sustainable economic growth. Lastly, there is a need for effective management and official development aid to ensure sustainable growth.

Foreign Aid, Remittances and Poverty in Sub-Saharan Africa (2007-2018)

This study examined the impact of foreign aid and remittances on poverty in 37 sub-Saharan African countries from 2007 to 2018, a region that has received significant aid and remittances over the past 20 years. Key variables included Poverty Headcount (%), international remittances, and foreign aid flows. Data were obtained from the World Development Indicators, OECD, and the GCIP published by the United Nations. A dynamic panel data model was used, estimated with the system-Generalized Method of Moments (sys-GMM). The AR (2) and Hansen test statistics supported the model’s validity, and a robustness check with Real Household Final Consumption Expenditure confirmed the results. The findings indicate that remittances significantly reduce poverty in the short run but not in the long run, while foreign aid has an insignificant positive effect. The study recommends reducing remittance costs, removing barriers to inflow, and creating a policy environment that enhances the effectiveness of aid.

Актуальні проблеми стану та розвитку економічної системи України в умовах воєнного стану

A structural and system analysis of the state and development of the economic system of Ukraine in wartime conditions is carried out and a set of economic measures to counter the negative manifestations of the full-scale invasion of the territory of Ukraine by russia is proposed. The authors systematize the most significant and growing threats in the economic sphere under conditions of uncertainty: demographic crisis, deformed age structure of the population with a high proportion of elderly people; high number of migrants; extremely high dependence on external financial assistance; irregular flow of foreign aid and a decrease in its volume with a simultaneous increase in defense spending; structural imbalances in GDP. The authors note that forecasts for GDP growth will not lead to an increase in the quality of life of Ukrainians and their purchasing power. The authors emphasize that, given the unpredictability of the duration of hostilities, unpredictable financial and material losses, a colossal deficit of the State Budget of Ukraine, a decrease in the stability of the economic system, and further inflow of external financial assistance are the main sources of funding for the military and social spheres. The main directions of reconstruction of the economic system of Ukraine to achieve the highest possible level of economic and financial self-sufficiency of the national economy are proposed; increasing the level of resilience and development of domestic enterprises in the conditions of military conflicts; prioritizing military spending; return of migrants to their homeland; sustainable growth of labor productivity of specialists in all sectors of the economy. This is especially important for the agro-industrial complex – through the development of industrial parks, technology parks, innovation parks, ecological agroparks, clusters, etc. Also, in order to generate additional sustainable income for socially vulnerable segments of the population, it is important to develop social entrepreneurship and the «silver economy» in territorial communities.

Foreign Aids and Sustainable Development in Nigeria: An Application of Dynamic Least Squares Approach

The impact of foreign aid in donor and recipient countries is largely unsettled amongst existing studies, as well as, literature. This is attributed to the various arguments for and against the benefits of foreign aid, as it relates to sustainable development. As such, the study examined the effect of foreign aids on sustainable development in Nigeria from 1986-2021. The study used Augmented Dickey Fuller (ADF) unit root test, Johansen Co-integration test, Dynamic Least Squares (DOLS) and Granger Causality test. The ADF result showed that sustainable development, foreign aids, exchange rate, inflation rate and trade openness were stationary at first level difference. Also Johansen co-integration test confirmed a long-run relationship between the variables. The DOLS result revealed that, foreign aid, exchange rate and trade openness were significant with each exhibiting a direct link with sustainable development at 5%; while, that of foreign aid was at 10%. This suggests that inflow of foreign aids in different forms is essential for resource conservation. Also, inflation rate showed an inverse and significant link with sustainable development at 5%. In addition, a bi-directional causality was established between foreign aid and sustainable development. The study concluded that foreign aids in different forms, exchange rates stability and high exportation that comply with environmental sustainability boost Nigeria's sustainable development growth, but spiral inflation worsens it. Thus, it is advised that government should declare an emergency over environmental issues in order to guarantee an increase in the flow of foreign aid into environmental sustainability.

Foreign Aid’s Effect on Political Risks for Foreign Direct Investment: A Literature Review

The last decade has seen an increasing focus on the involvement of the private sector in international sustainable development, particularly in high-risk jurisdictions. This involvement encompasses a broad spectrum, incorporating innovative private sector instruments—now acknowledged as ODA-eligible by the OECD—as well as traditional tools of external official support to developing countries, which remain the primary contributors to ODA flows. This literature review aims to consolidate the academic exploration of the enduring classic foreign aid tools' impact on the political risks associated with foreign direct investment (FDI), and identifies prevalent limitations while suggesting approaches to overcome these challenges.The first section delineates the central theme and rationale behind the literature selection process, utilizing the Google Scholar database to contextualize the research within a comprehensive framework. The subsequent section categorizes and compares the most relevant studies based on formal criteria and methodological parameters. Sections three and four critically assess the scholarly contributions in conceptualizing the mitigating influence of foreign aid in general, focusing on its impact on specific political risks such as expropriation, terrorism, and corruption. The concluding section delves into studies that explore foreign aid and foreign direct investment flows from China, the largest non-Western donor.A bibliometric analysis reveals a noteworthy disparity between research attention and policymaking focus on the subject matter. Notably, the selected papers fail to comprehensively cover the full spectrum of primary extra-legal and legal-governmental political risks for transnational businesses. Scholars' assessments of foreign aid's mitigating effect often lack differentiation between grants and loans or between flows directed to different sectors, as well as the distinction between aid routed through public institutions and bypassing them. Notably absent is a comprehensive analysis encompassing the complete range of 'established' Western and emerging non-Western aid providers, or an exploration of aid flows from non-OECD countries other than China. Most research focuses on Africa and fails to differentiate between recipients based on fragility, income levels, or other relevant categorizations. Moreover, the researchers have yet to delve into data post the COVID-19 outbreak, a critical period that significantly altered perceptions of political risk, foreign aid, and FDI flows. The literature review illuminates a research gap awaiting substantial exploration.

Does foreign aid affect innovation and institutional quality in middle-income countries?

In this study, we explore the dynamics between innovation, institutional quality, and foreign-aid flows in middle-income countries. Using an appropriate econometric model, we investigate the links between these variables in 79 middle-income countries (MICs) over 2005–2020. The results from our study show that foreign aid, institutional quality, and innovation have strong endogenous relationships. The short-run outcomes show that innovation Granger-causes institutional quality; foreign aid Granger-causes innovation; and quality of institutions Granger-causes foreign aid. The long-run outcomes indicate that institutional quality and innovation significantly affect the flow of foreign aid to the MICs. These results indicate that policy-makers in both foreign aid donor and recipient countries should pursue appropriate policies on foreign aid, quality of institutions, and innovation. For instance, in the short run, planners and evaluators in donor countries can direct their aid to MICs that have persistent challenges in improving their institutions and enhancing their innovative capabilities. In the long run, recipient countries ought to recognize that their institutional quality and innovation have a considerable impact on the inflows of foreign aid to their countries.

International Cooperation and Infrastructure Development in Bangladesh: An Analysis of Financial and Technical Support System

This study plays an important role by providing information about the actual scenario of infrastructural development of Bangladesh after taking foreign assistance from different foreign aid partners. Because of Bangladesh’s precarious economic conditions, our major foreign aid partners have provided the country with a substantial amount of public foreign assistance. This paper displays how Bangladesh depends on foreign aid to boost its economy by investing in different infrastructural mega projects. It also discusses the aid scenario of the country that has been changing not only in terms of sources and volume of aid but also in terms of sectoral allocation and utilization. This paper focuses on three points. First, the paper demonstrates the trends of foreign aid flows to Bangladesh since its independence. Second, it emphasizes national foreign policy to get incessant foreign assistance in terms of grants and loans to continue different development projects and to analyze the aid strategy of different aid partners. And third, to find out the major problems faced by foreign partners and plausible reformation made by the Bangladesh government to overcome these impediments.

Economic security and the role of collective West in the post-war recon struction of Ukraine

Problem setting. Although the outcome of the Russian-Ukrainian war is uncertain, it is necessary to start thinking about the future reconstruction of Ukraine. The paper examines issues related with the complex of problems connected with the post-war reconstruction of Ukraine and the participation of the collective West, which means a set of countries (USA, EU member states, Canada, Scandinavian countries) participating in Euro-Atlantic integration. In this article, we use previous experience of post-war reconstruction of Western Europe (for example, the Marshall Plan after World War II). We set out the key principles of international cooperation in the renovation of the Ukrainian economics and the state as a whole, as well as the role of individual subjects of international law in this process. The paper is intended to involve foreign and domestic lawyers in a discussion on a wider range of issues, which will include further and more detailed analysis of the best ways to rebuild Ukraine after the war. Analysis of resent researches and publications. The idea of developing a European plan for the reconstruction of Ukraine (“Marshall Plan for Ukraine”) began to be discussed after the Revolution of Dignity. However, it has not been the subject of serious research. The situation changed after Russia declared war on Ukraine. As Ukraine has a chance to win the war, the leaders of the United States, the European Union and Ukraine are discussing the possible content of a “New European Plan for Ukraine.” However, today, both in Ukraine and abroad, this issue is dominated by journalistic publications, which determines the relevance and practical significance of the development of the problem. Target of research is to reveal the content, main directions of participation of international financial institutions and individual states in the reconstruction of Ukraine after the war. Article’s main body. The article considers the problem of determining the content of the “New European Plan for Ukraine” in relation to the postwar period. The uniqueness of the plan to restore the Ukrainian economy is emphasized. The steps of international financial institutions and individual countries regarding the revival of Ukraine during and after the war are analyzed. Conclusions and prospects for the development. The conclusion that grants should make up a large share of foreign aid flows in the post-war reconstruction of Ukraine is substantiated. An important step in Ukraine’s post-war reconstruction should be the write-off of foreign debt, or at least part of it, by foreign financial institutions, primarily the IMF and the World Bank, as an important and necessary sign of genuine solidarity of the international community. Emphasis is placed on the special role of the United States and the European Union in the postwar reconstruction of Ukraine, in particular on the issue of writing off Ukraine’s foreign debt.

Does transnational terrorism stimulate foreign assistance?

This paper quantifies how past transnational terrorist attacks against a potential donor's assets result in enhanced foreign aid flows to a country hosting the responsible terrorist group. Given the reversed causality between foreign aid and terrorism, our empirical analysis puts forward an instrumental variable. Both conflict and governance assistance are shown to stem from transnational terrorist incidents involving recipient–donor dyads during 1974–2013 for a global sample. For recipient-related terrorism, lagged transnational terrorist events against a donor's assets display a robust positive impact on conflict and governance aid. Placebo or falsification tests support the exogeneity of the instrument.

What types of capital flows help improve international risk sharing?

Cross-border capital flows are expected to lead to increased international risk sharing by facilitating borrowing and lending in global financial markets. We examine risk sharing outcomes of various types of capital flows (foreign direct investment, portfolio equity, debt, remittance, and aid flows) in a large sample of emerging market and developing economies. Our results suggest that remittances and aid flows are associated with increased international risk sharing. Other types of capital flows are not consistently correlated with better risk sharing outcomes. These findings are robust to the use of different econometric specifications, country-specific characteristics, and other controls.

Conflict and Poverty in Afghanistan’s Transition

Despite record economic growth in the decade that followed the fall of the Taliban regime, poverty remained stubbornly high in Afghanistan, declining substantially only in regions that suffered more from conflict. This paper aims to explain this apparent puzzle by combining conflict-related indicators at the province level with household level observations. Estimates, which start in 2007 and stop in 2014 because of data availability constraints, show that large troop deployments reduced conflict intensity but also boosted local consumption, an effect reinforced by foreign aid flows being larger in conflict-affected areas. The robustness of these findings is assessed through an out-of-sample simulation of the impact of declining international troops and foreign aid after 2014. The simulation accurately predicts the sharp deterioration in living standards uncovered by a 2016 household survey.

Quid pro quo? Political ties and sovereign borrowing

Do stronger political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests stronger political ties with the US is associated with both better sovereign credit ratings and lower yields on sovereign bonds especially among lower income countries. We use official heads-of-state visits to the White House and coalition forces troop contributions as additional measures of the strength of political ties to further reinforce our findings.

Sorting out the aid–corruption nexus

AbstractWe employ matching methods to explore the relationships between foreign aid flows and corruption in recipient countries. Data are drawn from recipients of foreign aid for the 1996–2013 period. We find no compelling evidence of an effect running from corruption to aid flows. Furthermore, point estimates imply that corruption reforms lead countries to receive less aid. Alternatively, we generally find that, over a 10-year horizon, a sustained increase in aid leads to more corruption in a recipient. It is the sustained nature of an aid increase that seems to be important for this effect. (We generally do not report significant results for large changes in aid that are not sustained over time.)

Foreign aid to Africa after the global financial crisis: A consideration in retrospect

Several projections were made during and after the Global financial crises of 2007-2009 about the continuity of foreign aid to Africa.Some opined that the financial crises will reach Sub Saharan Africa via the decline of foreign aid as well as other financial transfers such as remittances and Foreign Direct Investment. It is on this premise that this study examined the flow of foreign aid to Africa in an effort to appreciate the trend before, during and after the Global financial crisis. The study used trend charts and the Bai-Perron multiple structural break test as well as the Chow test to analyse data sourced from the World Bank Indicators. The results show that, though Overall ODA dropped in 2007, it consistently increased up to 2013 by 25%. The structural break test shows that the trend of ODA has not significantly changed as a result of the Global financial crisis for; low, lower middle, higher middle and Sub Saharan countries as a whole. The result further shows that ODA to low income countries were higher than those of lower middle income countries which was equally higher than higher middle income countries. ODA to the agricultural, educational and economic infrastructural sector all increased after 2009. It is only ODA to the health sector that dropped significantly. The study concludes that Foreign aid to Africa has not declined, but rather improved in most cases. It therefore commends the efforts of aid donors and emphasizes the complementing role of foreign aid to Africa.

The Relationship Between Economic Growth and Foreign Aid: The Case of Afghanistan

One of the main goals of foreign aid is to contribute to underdeveloped and developing countries’ economic growth and accelerate their growth. Foreign aid has been provided to Afghanistan by developed and developing countries for many years. Especially after 2001, the flow of foreign aid to Afghanistan started and continues until today. Despite billions of foreign aids provided, the country’s economy still faces lowincome levels, high poverty, and unemployment rates. In this study, the relationship between official development assistance and economic growth was analyzed using the time series method for Afghanistan between 1986 and 2018. For this purpose, ADF and Phillips-Perron (PP) unit root tests were performed to stabilize the series used. Then, after the lag length was determined, the Johansen cointegration test was conducted to test whether these two variables move together in the long run. As a result of the test, a cointegration relationship between variables has been proved. The Granger causality test based on the error correction model was conducted to investigate the causality relationship between these two variables. As a result, a one-way causality relationship from the received official development assistance to economic growth was determined. Finally, the results of variance decomposition support the result of the Granger causality test.

Effects of Foreign Aid and Remittances Flows on Saving and Investment in Developing South Asia: Panel Data Study

In this study, we investigate the impact of remittances and foreign aid (official foreign assistance) on investment and saving in South Asian countries. We also analyze the comparative influence of remittances and foreign aid in stimulating saving and investment. We use a sample of five South Asian countries over the period 1985-2018 and employ OLS and 2SLS methods to estimate the effect of remittance and foreign aid on saving and investment. The result reveals that remittance has a positive impact on saving but has no significant effect on investment and shows that foreign aid has no significant impact on saving but negatively influences investment. In line with our results, a rise in 10 percent of remittances in South Asia raises savings by 1.6 percent in the OLS estimates and by 1.7 percent when we use 2SLS. At the same time for a 10% increase in foreign aid decreases saving by 4.3% and 3.3%, respectively, in two methods. For the second regression, an increase in 10% remittances hamper investment by 1.3% and 1% for OLS and 2SLS, respectively. And for the analogous 10% increase in foreign aid decrease investment by 5.4% and 5.2%, respectively. However, if foreign aid is efficiently used, it can be an important complement to remittances by permitting households to overcome the minimum threshold level and they can use a bigger portion of their remittances for savings and investment motive.

Strategic Samaritanism: how armed conflict affects aid receipts

ABSTRACT How does armed conflict affect the flow of foreign aid? Aid scholars have frequently argued that assistance is given either to serve donor interests or meet recipient needs and evaluated their theories using a single measure of aid. In this project we introduce the concept of an aid portfolio comprised of different types of assistance that a conflict-affected country might receive: humanitarian, economic, and aid to support governance and the social sector. We expect these components of a recipient country’s aid portfolio to vary according to both its needs and its capacity to absorb them. We call this logic, which assumes donors are motivated in part by considerations of efficacy, ‘strategic Samaritanism.’ We also expect conflict-affected countries’ needs and capacity to vary in predictable ways, with states that are severely affected by violence in need of more aid but less able to absorb some types of assistance until the fighting is over. Meanwhile, countries heavily affected by refugee flows should both need and be able to absorb more of each type of aid. We test our argument on a dataset of aid flows and violent conflicts in developing countries from 1989–2009 and find considerable supporting evidence for our expectations.