Is the Threat of Foreign Aid Withdrawal an Effective Deterrent to Political Oppression? Evidence from 53 African Countries

Abstract:

This article complements existing literature on the aid-institutions nexus by focusing on political rights, aid volatilities, and the post-Berlin Wall period. Our findings show that, while foreign aid does not have a significant effect on political rights, foreign aid volatilities do mitigate democracy in recipient countries. Such volatilities could be used by populist parties to promote a neocolonial agenda, instill nationalistic sentiments, and consolidate their grip on power. This is especially true when donors are asking for standards that the majority of the population in control does not want and political leaders are unwilling to implement them. Our empirical evidence is based on 53 African countries for the period from 1996 to 2010. As a main policy implication, creating uncertainties in foreign aid for political rights enhancement in African countries may achieve the opposite results. We also discuss other implications, including the need for an “After-Washington” Consensus.

Keywords::

• Africa
• development
• foreign aid
• political rights
• uncertainty

JEL Classification Codes::

• C53
• F35
• F47
• O11
• O55

Appendices

Table 1A. Definitions of Variables

Table 1. Examples of Rents, Effects, and Outcomes

(DAC) countries. NODAMD: NODA from multilateral donors; SD1: distortions by simple standard deviation; SD2: distortions by standard deviation of the residuals after first-order autoregressive processes.

Table 2A. Summary Statistics

Table

Notes

¹ Standard errors in parenthesesIn line with John Marangos (2009), while the Washington Consensus has “different versions and interpretations,” the definition we employ here is closer to Moyo’s (2013). According to Moyo (2013), while the Washington Consensus can be defined as private capitalism, liberal democracy, and prioritizing political rights, the Beijing Consensus reflects state capitalism, deemphasized democracy, and prioritizing economic rights.

² The roots of the Washington [C]onsensus that grew in the 1980s and the end of the Cold War quickly changed this status quo: in addition to strong external pressure to liberalize, rulers began to face increasing constraints to using foreign aid to support their followers. While aid continued to flow, it came increasingly in forms far less amenable to patronage politics” (Gibson, Hoffman and Jablonski 2014, 25).

³ Eubank (2012) received the award for best article in 2013 from the Journal of Development Studies.

₄ Recently, Augustin Fosu (2013a) has documented an interesting strand of literature on multi-polar strategies of development. They include lessons from the following countries and regions: Latin America and the Caribbean (Cardoso 2013; De Mello 2013; Pozo, Sanchez-Fung and Santos-Paulino 2013; Solimano 2013; Trejos 2013); East Asia and the Pacific (Jomo and Wee 2013; Khan 2013; Lee 2013; Thoburn 2013; Warr 2013); China and India (Santos-Paulino 2013; Singh 2013; Yao 2013); the Middle East and North Africa (Baliamoune-Lutz 2013; Drine 2013; Looney 2013; Nyarko 2013b); and Sub-Saharan Africa (Fosu 2013b; Lundahl and Petersson 2013; Naudé 2013; Robinson 2013; Subramanian 2013).

⁵ Okada and Samreth (2012), Asongu (2012a), Asongu (2013a), and Asongu and Jellal (2013) use data for the periods 1995–2009, 1996–2010, 1996–2010, and 1996–2010, respectively.

⁶ In essence, we perform two tests to assess the validity of the models: (i) Manuel Arellano and Olympia Bond’s autocorrelation test that checks the null hypothesis of no autocorrelation and (ii) the Sargan test that examines over-identification restrictions. The latter test assesses whether the instruments are uncorrelated with the error term in the main equation. Overwhelmingly, for all the models, we have not been able to reject either the AR(2) null hypothesis for the absence of autocorrelation, or the Sargan null hypothesis for instrument validity.

⁷ We discuss this in some detail in the paragraph about a new Washington Consensus that follows.

⁸ Asongu (2014a) has verified Lalountas, Manolas, and Vavouras’s (2011) hypothesis for Africa: “Thus, our main conclusion is that globalization could be a powerful means of fighting corruption, only for middle and high income countries. For low income countries however, globalization has no significant impact on corruption. We might, therefore, conclude that at low given to the economic dimension of international integration and as a result the effect of globalization on corruption is limited. Persistence on globalization as an effective means to reduce corruption in developing countries might lead to inappropriate policies. On the contrary, at high levels of per capita income emphasis is given to the political and social dimensions of globalization and as a result the effects of this phenomenon on corruption control are significant” (Lalountas, Manolas and Vavouras 2011, 645).

Additional information

Notes on contributors

Simplice A. Asongu

Simplice A. Asongu is a lead economist at the African Governance and Development Institute in Yaoundé (Cameroon). He is also a research associate at the Department of Economics in the University of South Africa.

Jacinta C. Nwachukwu

Jacinta C. Nwachukwu is a principal lecturer in the Department of Economics, Finance and Accounting, Faculty of Business, Environment, and Society at Coventry University (UK). The authors are indebted to the editors and reviewers for their constructive comments.