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The Perils of Unearned Foreign Income: Aid, Remittances, and Government Survival

Published online by Cambridge University Press:  16 January 2012

FAISAL Z. AHMED
FAISAL Z. AHMED*
Affiliation:
University of Oxford
*
Faisal Z. Ahmed is Prize Fellow, Nuffield College, University of Oxford, New Road, Oxford, UKOX1 1NF (faisal.ahmed@nuffield.ox.ac.uk).
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Abstract

Given their political incentives, governments in more autocratic polities can strategically channel unearned government and household income in the form of foreign aid and remittances to finance patronage, which extends their tenure in political office. I substantiate this claim with duration models of government turnover for a sample of 97 countries between 1975 and 2004. Unearned foreign income received in more autocratic countries reduces the likelihood of government turnover, regime collapse, and outbreaks of major political discontent. To allay potential concerns with endogeneity, I harness a natural experiment of oil price–driven aid and remittance flows to poor, non–oil producing Muslim autocracies. The instrumental variables results confirm the baseline finding that authoritarian governments can harness unearned foreign income to prolong their rule. Finally, I provide evidence of the underlying causal mechanisms that governments in autocracies use aid and remittances inflows to reduce their expenditures on welfare goods to fund patronage.

Type
Research Article
Information
American Political Science Review , Volume 106 , Issue 1 , February 2012 , pp. 146 - 165
Copyright
Copyright © American Political Science Association 2012

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