Public Choice: Political Aid Cycles

Researchers have scrutinized foreign aid’s effects on poverty and growth, but anecdotal evidence suggests that donors often use aid for other ends. We test whether donors use bilateral aid to influence elections in developing countries. We find that recipient country administrations closely aligned with a donor receive more aid during election years, while those less aligned receive less. Consist with our interpretation, this effect holds only in competitive elections, is absent in U.S. aid flows to non-government entities, and is driven by bilateral alignment rather than incumbent characteristics.

That is from a new paper in the AER by Faye & Niehaus (December 2012). The authors explain (p. 2):

. . . In these [2006 Palestinian] elections the U.S.-backed incumbent Palestinian Authority (P.A.) faced strong opposition from Hamas. In the weeks preceding the elections the United States Agency for International Development Assistance (USAID) funded several development programs in Palestine including the distribution of free food and water, a street-cleaning campaign, computers for community centers, and even a national youth soccer tournament.

The full paper (draft: June 2011).