This article examines how political institutions that provide an incentive to cultivate a personal vote condition the relationship between foreign aid and economic growth in developing country democracies. Politicians in aid-recipient countries with high levels of personalism are more likely to pursue corruption and target government spending to narrow constituencies. Because personalism affects these outcomes, it provides incentives to use foreign aid for politically motivated spending at the expense of investing foreign aid in growth-promoting public goods. Using panel data from 61 aid-recipient democracies from 1961 to 2001, the author finds that aid increases growth in democracies with less personalist institutions but decreases growth in countries with high personalism. The author also shows that personalism conditions the relationship between aid and the composition of government spending: Aid increases spending on public goods (relative to narrow, particularistic goods) in countries with low personalism but has the opposite effect in highly personalist countries.
– Joseph Wright, Aid Effectiveness and the Politics of Personalism, Comparative Political Studies, Feb 2010 (gated link here)
Thanks to David Roodman we’re all Aid Growth Regression sceptics now. And so my linking to this study comes with a great big caveat lector. However, the findings are intuitive (aid works worse in clientelistic political cultures) and certainly worth considering.
Whether they’re good news from an aid agency perspective depends of course on what type of countries you’re working in. As does what sort of practical conclusions might be drawn from the study. The most obvious one seems to me to be that, where states are reasonably functional, it makes sense to provide the lion’s share of ODA through the state (i.e. following Paris principles more or less). On the other hand, where states are heavily corrupt and or clientelistic, it’s seriously seriously worth channeling a significant proportion of aid through other means. Obvious.