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How Foreign Aid Can Foster Democratization in Authoritarian RegimesAuthor(s): Joseph WrightSource: American Journal of Political Science, Vol. 53, No. 3 (Jul., 2009), pp. 552-571Published by: Midwest Political Science AssociationStable URL: http://www.jstor.org/stable/25548137 .Accessed: 07/04/2013 14:20Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at ms.jsp.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.Midwest Political Science Association is collaborating with JSTOR to digitize, preserve and extend access toAmerican Journal of Political Science.http://www.jstor.orgThis content downloaded from 155.247.167.222 on Sun, 7 Apr 2013 14:20:09 PMAll use subject to JSTOR Terms and Conditions
HowForeign Aid Can Foster DemocratizationinAuthoritarianRegimesJoseph Wright PennsylvaniaState Universityin recent yearsDonorshave madesomeforeignaidon igateswhetherand how such conditionalityworks inpractice. The promise ofhigheraid ifthecountrydemocratizesonlyprovidesanincentive for democratizationfor politicalleaders whoexpectto remainin office after democratizationoccurs.I showthatdictatorswith largedistributionalcoalitions,who have a good chance ofwinningfair elections,tend to respond toaidby democratizing. In contrast,aid helps dictatorswith the smallestdistributional coalitions hang on topower. I presenta model that shows a dictator'sdecision calculus,given differenta priori support coalitions and varyingdegrees of aidconditionality,and testthemodel implicationswith data from 190 authoritarian regimes in 101 countriesfrom 1960 to2002.Whilemost of the literature on foreign aid effectiveness focuses on how aid influences ecoby succeeding in competitive, multiparty elections shouldthe dictator liberalize the regime. The basic intuition isthat iffuture aid flows are in anyway contingent on politnomic growth (Burnside and Dollar 2000;andRoodman2004; Svensson 1999), recentlyEasterlyscholars have turned their attention to the effect of aidical liberalization, the likelihood of future aid declines asthe dictator becomes less likely to survive political liberalization in power. Thus, dictators who stand littlechanceon democratizationand Reynal(Djankov, gcriticsthataiddecreasesSomeofaid2004).regimes arguethe likelihood of democratization by contributing to theof surviving liberalization will not be swayed by promisesof aid, but dictators who are likely to remain in powereven if they liberalize may view the promise of future aidas an incentive to democratize. The effect of aid on dedevelopment of "bad" institutions (Brautigam and Knack2004), or by increasing rents to those who control thestate, allowing elites to exclude others from power, andmocratization, therefore,will vary by factors that increasethe chances of a dictator surviving political liberalizationthereby reducing representativeness (Djankov, Montalvo,and Reynal-Querol 2008).lTo understand how aid affects the likelihood of deI propose a theory to explain how aidmocratization,enters a dictator's decision over whether or not to deintact.The next section briefly reviews the literature onThe following secforeign aid and democratization.tion proposes a modelof how aid enters a dictator's decision over democratization.Next, I discuss theto test the hypotheses. I thenpresent the results of empirical models used to test theIn the empireffect of foreign aid on democratization.mocratize and show empirically that aid is not alwaysI exploit the fact that aidinimical to democratization.comes from international donors to argue that the probdata and methodsical section, I use two measures of the dependent variable (democratization) and multiple operationalizationson the likelihoodability of receiving future aid dependsas a dictator oraof dictator surviving in power?eitherJoseph WrightisAssistantProfessor,of PoliticalDepartmentusedScience,PennsylvaniaState University,PondLab, UniversityPark, PA16802(josephgwright@gmail.com).I thank Barbara Geddes,Political Science Association.ofthe Midwestearlier version of this article was presented at the annual meetingand suggestions.reviewers for helpful commentsand two anonymousJennifer Tobin,Jeffrey B. Lewis, Yuch Kono, Kevin Morrison,from the UCLAthisresearchforfinancialI am grateful to Jessica Weeksand Xun Cao for sharing data. I gratefully acknowledgesupportat Princeton University. All errors remain my own.and GovernanceCenter for Globalizationand the that foreign aid propsJournalof PoliticalScience,because Westernup dictatorsVol.53, No.?2009, Midwest Political ScienceAssociationdonorsvaluestability withdictatorto democratic3, July 2009, Pp. 552-571ISSN 0092-5853552This content downloaded from 155.247.167.222 on Sun, 7 Apr 2013 14:20:09 PMAll use subject to JSTOR Terms and Conditionsuncertainty(Brown
FOREIGNAID AND DEMOCRATIZATION553of the key explanatory variables (aid and the size of thedictator's coalition). I conclude with a discussion oftheresults and implications for future research.and that year is chosen as themarker formeasuring thedependent variable, then that initial year may not be agood measure of a process that we assume takes placeHow Does Aid Hinder Democracy?critics of aid, some have found thatis associated with decreases in institutional qualConsistent withaidity (Brautigam and Knack 2004) and democratization(Djankov, Montalvo, and Reynal-Querol 2008), or hasrelatively little effect (either way) on democratizationor changes in political institutions (Knack 2004). Thereis also evidence that foreign aid increases governmentspending and reduces government revenue (Remmer2004). However, others have found that aid is associated with higher levels of democracy (Goldsmith 2001),particularly during the post-Cold War period (Dunning2004). The finding that aid reduces the likelihood of democratization(Djankov, Montalvo, and Reynal-QuerolKnack2008;2004) has since been rehearsed in the popular press (Easterly 2006) and policy circles (Harford andKlein 2005; Islam and Coviello 2006; Kenny 2006).One possible explanation for these contradictoryfindings is that researchers model the processes of democratizationand institutional change in fundamentallydifferentways. The finding that aid isnegatively associatedwith changes in institutional quality or democratization,for example, is the result of cross-section regressions thatuse the change in thedemocracy score from the beginatotheendofningperiod as the dependent variable andaverage foreign aid across all the years covered by eachcross-section (Knack 2004). Alternatively, studies finding that aid is associated with higher levels of democracy(Dunning 2004; Goldsmith 2001) pool data across countries and over time.The cross-section approach may be problematic fora couple of reasons. First,by taking the change in limportantdecades,variation.thegin and end years. If a particular country undergoes aswift change in the level of democracy in a particular yearresearcherForexample, the changes in Freedom House scores from 1975 to2000 in El Salvador, Eritrea, Guatemala, Iran, Thailand,and Zimbabwe are all zero. According to amodel thatusesonly cross-sectional data, the level of democracy in thesecountries did not change over those 25 years, yet thesecountries all experienced dramatic changes in the level ofincreases as well as decreases. Becausedemocracy?boththese changes are averaged out in the dependent variableused in a cross-section approach, we are unable tomodelthis variation.Second, the dependent variable in cross-section regressions may be extremely sensitive to the choice of beover a period of time. For example, in 1975 Thailand hada brief interlude withbetweendemocracy?sandwichedtwo years of autocratic rule (1974 and 1976), while in2000, Peru saw its first democratic elections after eightyears of semiauthoritarian rule. If the chosen period were1974 to 1999 (rather than 1975 to 2000), the observationsof the dependent variable would differ dramatically forthosecountries.In addition to the variation in the dependent variableover time, there is considerable variation over time in theflow of aid to developing countries. As Figure 1 shows,the end ofthe Cold War (1990) marked a watershed inthe flow of foreign aid. Aid steadily increased from 1960through 1990 and then abruptly declined after 1990, againincreasing after 2000. We should exploit this variation inthe data to understand the relationship between foreignaid and political development.Asecond possibility that might explain the divergent findings for the aid-democracy relationship is thatresearchers may not have correctly specified the underin their estimation equations.lying causal mechanismsMost studies of aid and democracy cite a moral hazardproblem as the reason why aid has a deleterious effecton the development of democratic institutions. Yet fewcarefully specify how themoral hazard caused by aid willinfluence the development of political institutions; nordo they directly test the implications of a political moralhazard.Knack (2004), for example, argues that aid might reduce the need for taxation, thereby reducing the demandfor democraticaccountability (see Tilly 1990 and North1990); or aid might increase the power ofthe presidentin democracies (Brautigam 2000); or aidmight increasecontrolofthepolitical instability by "makinggovernmentand aid receipts a more valuablesimiprize"?reasoninglar to Grossman (2000). However, this research does nottest these channels (taxation, presidential power, orcoupattempts) ofthe aid curse, but simply assumes that one ofthe explanations must be true ifa negative cross-sectioncorrelation between aid and democracy exists.Similarly,Djankov, Montalvo, and Reynal-Querol (2008) posit thataid hurts democracy because "[a]large amount of aidcan reduce the incentives for democraticaccountability.When revenues do not depend on the taxes raised fromcitizens and business, there is less incentive for accountability.At the same time corrupt government officialswilltry to perpetuate their rent-seeking activities by reducingthe likelihood of losing power" (2008, 172).They testThis content downloaded from 155.247.167.222 on Sun, 7 Apr 2013 14:20:09 PMAll use subject to JSTOR Terms and Conditions
554 JOSEPHWRIGHTFigure 1Four Decades of Foreign Aid2-J7? -(0CM-/ A/ \/ ?/Z\\? /\\ ///"2 V/a//8 ii-jI \/\8'l-owA/2\\W' 'H-1-1-1-1S-1-1-1-1?19701960 1980199019602000Aidaveragedacrossall authoritarianregimes19802000 1990in each year.neither "accountability" nor "rent-seeking," but suggestone of these intervening variables can explain the relationship between foreign aid and the level of democracy.1next model a specific causal connection between foreignaid and democratization1970YearYearNote:V///Vand then directly test themodelimplications empirically.2tional coalitions aremore likely towin power in a democratic election, then aid to dictators with larger coalitionsprovides an incentive to democratize while aid to dictatorswill small coalitions offers no such incentive.In the next sectiondecision-theoretic modelI build these insights into aof the dictator's decision overassumes that, all elsemore aid to less. One justificaequal, the dictator preferstion for this assumption is that if foreign aid is fungiblewhether to democratize. The modelA Theory ofHow Aid HelpsDemocratizationCentral to the dictator's democratization decision are twofactors that affect his chance of survival as a dictator relative to his chances of remaining in power should hedemocratize:(1) the size of a dictator's distributionalcoalition and (2) economic growth. Aid contributes tothe incumbent leader's utility under both democracy andamount of aiddictatorship, but donors may reduce thein the next period ifthe dictator chooses not to democratize. The promise of future aid, contingent on democratization, only provides an incentive for democratizationleaders who expect to remain in office afterdemocratization occurs. If dictators with large distribufor political2Theconcernsthe effect of foreign aid on democpresent studyor "state capacity." Both ofnotandratization,"good governance"and meritthese latter concepts are relevant to political developmentare analytically distinct from democtheyinvestigation. However,state isracy, as they do not directly concern how power within thetheoretical frameworkand contested. The subsequentmaintainedlooks only at how aid affects the utility of democratsin power and not how they govern.and dictatorsmore aid allows(Feyzioglu, Swaroop, and Zhu 1998),usetotooffaid moniesincumbentspaypolitical chalorelectoral campaigns, or simplylengers, fund repressionpocket aid for current or future personal consumption.aid may therefore increase the probability ofremaining in power and increase the utility of being inoffice. Second, themodel assumes that, all else equal, dictators prefer not to liberalize the polity. This does notFungibletheywill never pursue democratic reforms. Indeed,the central intuition ofthe model suggests that how a dictator views a possible trade of aid for liberalization willmeanis in termsdepend on how costly political liberalizationofthe dictator's probability of remaining in power. Ifdemocratizing reforms are likely to lead to the incumbentthelosing power, aid will not be persuasive. If,however,demoeventoafterremaindictator is likelypursuingcratic reforms, then aid may provide sufficient incentiveto liberalize.A final assumption posits that donors can crediblyoffer aid that is contingent on democratizing. Recent emcountriespirical work shows that during the 1990s allyThis content downloaded from 155.247.167.222 on Sun, 7 Apr 2013 14:20:09 PMAll use subject to JSTOR Terms and Conditions
FOREIGNAID AND DEMOCRATIZATION 555to antidemocratic behavior (Hyde and Boulding 2007).Others have suggested thatmultilateral institutions, suchas theWorld Bank, use resolutionsby the U.N. Commission on Human Rights as political cover to reduceaid to countries that violate humanrights (Lebovic andInaddition, beginning in the late 1980s2008).and early 1990s, nearly everymultilateral aid agreementVoetencontained explicit language linking foreign aid disbursement to progress towards democracy (Crawford 2001).Together, these suggest that since the end ofthe Cold War,foreign aid can plausibly be viewed as at leastmarginallycontingent on political development (Dunning 2004).To capture the fact that the degree of aid conditionalitycan vary?both over time and donor-recipient dyad?Imodel conditionality as a continuous variable: the share ofaid to a recipient country that the donor cuts in responseto antidemocratic behavior. While the donor-recipientmodeled as a game of straterelationship can be fruitfullyinteraction(Stone 2004), I abstract away from thegicinteraction between two players and concentrate onthe recipient dictator's utility function to highlight howthe costs of political liberalization will affect the dictator'sincentives to respond to the offer of contingent aid.3to democratize. As probabilities that an event occurs,0 Pd 1 and 0 Pn 1. e is the dictator's unobservable, intrinsic value of not democratizing.4 Giventhese utilities, the dictator democratizes when the following condition ismet:5 AidPd-aAidPne(1)When an incumbent has a large distributional coalition, denoted as W, during authoritarian rule, this translates intomore name recognition and a larger patronageparty,which both increase the probability of winning anelection, P , if the dictator democratizes. Following thelogic ofthe retrospective voter, recent economic growth,denoted as G, also increases the probability the incumbent(dictator) will win a democratic election, Pd. We can thenwrite the probability of winning the election (Pd) if thedictator democratizes as a function of economic growth(G) and the size ofthe distributionalwill return to 7 in a moment.)coalition(W).6 (Ipd W yG(2)Recent economic growth increases the probability ofthe dictator surviving into the next period, which captures the fact that growth is one ofthe best predictors ofauthoritariansurvival (Gasioworski 1995; Haggard and1995). The size ofthe dictator's distributionalcoalition also increases the probability that the dictatorKaufmanFormalizingtheArgumentLet Aid be the amount of aid a dictator receives in each 0; and let aperiod where Aidrepresent the possibledecrease in aid should the dictator refuse to democratize,where 0 a 1.By including a, we allow for the possibility that donors cut aid to dictators who do not liberalize.If a is close to one, then the amount of aid the donorgives to the dictator (when he does not liberalize) is onlyslightly less than the dictator's country would receive ifthe dictator democratizes; in this caseconditionality isimplemented with a soft touch.We can interpret a smalla as a world where politicalconditionality induces a largedecrease in aid when dictators do not liberalize; in thiscase conditionality has a hard bite.U Democratize UNotDemocratize Let Pd be the probability that the dictator wins anelection after liberalizing the political system?what weobserve as democratization?andPn be the probabilitythat the dictator remains in power if he chooses not3Becauseregime.7 Thus, the size ofthe distributional coalition, W,4e is treated as a continuousentiable)cumulativecomparativeI modelthe degree ofas an exogenousconditionalitythis assumesthat the dictator hasperfect informationof conditionalityin a strategicvariablefunction.followinga (differstatics s.6Addinga constantto (2) or (3) would again not change the resultbecauseultimatelyweare interestedin the second-orderpartialofWand G w.r.t. df/dAid.The specificfunctionalforms in (2) and(3) are not necessary,but only includedneed only assume that parameter,about the degreerandomdistribution5a constantto either side ofAdding(1) to reflect otherequationfactors that contribute to the democratizationconstraint(e.g., foror externaltheeign interventionprice shock) does not changeas shown below,result because,any constant would drop from theAlurdOiAldPnsurvives, Pn (Geddes 1999; Smith 2005). While Geddesargues that single-party regimes aremore likely to survivebecause elites in these regimes prefer losing a dispute overpolicy or succession within the party to the party losingpower (a function of party size), Smith shows that it is theextent and reach of party institutions thathelp them perseverethrough external shocks and survive inpower. Thevariation in duration among single-party regimes, Smithshows, can be explained by the strength of party institutionalization. Thus, it is plausible that a larger authoritarian distributional coalition makes for a more durableof G and W.7For the comparative? for ease ofinterpretation.and that f* statics results to hold, I need only assumeincase itcould be truethat 0.If*, whichff*This content downloaded from 155.247.167.222 on Sun, 7 Apr 2013 14:20:09 PMAll use subject to JSTOR Terms and ConditionsIforall valuesthat
556should increase the probability of surviving in office inthe next period if the dictator does not democratize (Pn).We can then write Pn as a function of economic growthfor the conditional effectof aid on democratization:ojW(3)(df/dAid)/8W 0 By including 0 7 1 in equation (2), we assumethat economic growth ismore important for the survivalof a dictator in an authoritari
An earlier version of this article was presented at the annual meeting ofthe Midwest Political Science Association. I thank Barbara Geddes, Jeffrey B. Lewis, Yuch Kono, Kevin Morrison, Jennifer Tobin, and two anonymous reviewers for helpful comments and suggestions. I am grateful
Foreign aid has various different forms; economic aid, social aid and "other aid" components are the main ones. Economic aid is a form of physical capital, aid to both infrastructure and the production stage, social aid refers to aid in form of human capital whereas other aid components entail food and emergency aid (Akramova 2012, 119-120).
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