Aid effectiveness: the role of the local elite

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Abstract

We study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries. The local elite serves as an intermediary between aid donors and aid recipients through its control of the government and major firms. The likelihood of misusing aid is large if the elite is characterized by extensive economic and political power and little concern for social groups besides itself. To determine which countries have this type of elite we use a historically determined variable: the percentage of European settlers in total population in colonial times. We provide strong empirical evidence that the level of European settlement in colonial times is negatively related to the effectiveness of foreign aid as measured in a growth-regression framework. Our results are robust to the inclusion of a wide set of alternative explanatory factors advanced in the aid effectiveness literature. © 2008 Elsevier B.V. All rights reserved.

Bibliographical metadata

Original languageEnglish
Pages (from-to)120-134
Number of pages14
JournalJournal of Development Economics
Volume90
Issue number1
DOIs
Publication statusPublished - Sep 2009