Preferences and institutions: constraints on European Union foreign aid distribution

Abstract

Despite its lack of a military, the European Union’s (EU’s) use of soft power is increasingly influential in world affairs. Understanding the politics behind setting the EU’s foreign aid priorities is a substantively important question. Applying a combination of factor analysis and time-series cross-sectional analysis of foreign aid received by 151 countries between 1981 and 2011, we examine the factors associated with EU foreign aid disbursement. We find that far from being a tool of the larger member states, EU foreign aid policy is most similar to the foreign aid policies of the smaller Nordic members, Ireland and the Netherlands. Moreover, we find that measures of the human rights records of potential recipients significantly predict the amount of aid the EU disburses to those countries. Our findings shed light on the sources of EU foreign policy actions as well as on the politics within the EU.

Keywords:

• European Union
• foreign aid
• factor analysis
• soft power

Acknowledgements

Y. Kim also thanks for the support from Hankuk University of Foreign Studies Research Fund.

Notes

1. De Mesquita and Smith (2007) divide foreign aid determinant literature into two dimensions such as aid as an instrument of national policy and humanitarian concerns.

2. The detailed information about these projects can be found in the website of EIDHR (http://www.eidhr.eu/success-stories).

3. See SIPRI Fact Sheet (http://books.sipri.org/files/FS/SIPRIFS1504.pdf).

4. Neither fixed-effects nor random-effects models are perfectly suited models in all situations (Johnston and DiNardo 1997). Both models have pros and cons for panel analysis. Fixed-effects models might be preferred in our data-set considering the fact that we include all recipient countries for time periods of 1998–2011. The Hausman test also shows that fixed-effects models are preferred over random-effects models. Nonetheless, we adopt all results from both models to demonstrate robustness.

5. All 15 members are the members of European Union before the enlargement in 2004 and OECD Development Co-operation Directorate. They are Germany, France, the United Kingdom, Sweden, Spain, Portugal, the Netherlands, Luxembourg, Italy, Ireland, Greece, Finland, Denmark, Belgium, and Austria. Out of them, Spain and Portugal joined the EU in 1986, and Austria, Finland, and Sweden in 1995. Their data before they joined the EU are not included for factor analysis.

6. When we took the log of this variable, there are several negative values due to recipients’ loan repayment to donors. Following conventional methods, we change negative values into zeros. After this, we add one to all zero values and log transform the dependent variable, by which we can avoid all missing values.

7. Cingranelli, Richards, and Clay (2014).

8. We ran the factor analysis with both physical integrity rights and empowerment rights. Since the results with these two kinds of CIRI human rights data are very similar to each other, we only report the results with empowerment rights for factor analysis.

9. See the website of Polity IV project (http://www.systemicpeace.org/polity/polity4.htm).

10. We took the log of population to avoid statistical distortion from the distribution of the untransformed variable.

11. See the website of World Development indicators (http://data.worldbank.org/data-catalog/world-development-indicators).

12. See the website of Correlates of War Project (http://www.correlatesofwar.org/).

13. In this test, the correlation between democracy and physical integrity rights is not high: 0.393. Meanwhile, the correlation between democracy and empowerment rights are substantively high: 0.733. We believe this is because empowerment rights are more directly related to the level of democracy.

14. To check robustness, we included variables showing allies and former colonies of France, the UK, and Germany to control for the effect of ties between largest members and recipients. The empirical analysis shows very similar results.