The Uses and Abuses of Foreign Aid

Abstract

Research shows that foreign aid promotes economic development in democracies but not in autocracies. Although explanations for this phenomenon vary, a common theme is that autocracies are more likely to misuse aid. We provide evidence of such misuse, showing that autocracies are more likely than democracies to divert development aid to the military. Theoretically, we build on “selectorate” models in which autocrats respond to aid by contracting civil liberties. Because this strategy requires military capacity, autocracies but not democracies should spend aid on the military. We support this hypothesis empirically, providing further evidence that autocracies misuse foreign aid.