Variation in Strategic Importance and Donor Preferences

During the Cold War, dictators on the “right” side of the bipolar power struggle were rewarded with large amounts of aid. An example of this is the regime of Mobutu Sese Seko in Zaire (now Democratic Republic of Congo), which received hundreds of millions of aid dollars a year in exchange for supporting the fight against communists in the Angolan civil war. There was probably little doubt at the time that Mobutu was not using the money to “vaccinate children or train teachers.”Footnote ²⁷ Donors would likely have preferred that Mobutu help fight communism and that aid be used for beneficial or at least not harmful programs. However, strategic considerations overshadowed donor preferences and the money continued to flow. The collapse of the Soviet Union brought about change; as Brautigam and Knack note “the end of the Cold War allows the United States and other donors to target aid more selectively, rather than using aid to strengthen corrupt but geopolitically useful autocracies.”Footnote ²⁸

The end of the Cold War brought not only the demise of strategic importance for many developing countries but an increased emphasis on democratization for many democratic aid donors. As Kelley argues, “the [cold] war's end freed Western countries to push for democratic changes. Indeed, democracy increasingly came to be seen as strengthening rather than undermining security interests.”Footnote ²⁹ The possibility of impeding democratization can create a negative externality for democratic donors in any period. However, the magnitude of this externality and the extent to which it is trumped by strategic considerations likely changes with the transition from the Cold War to post–Cold War period.

Although the strategic importance to donors of the average developing country fell with the end of the Cold War, in any period there will be recipients of particular geopolitical significance. Even in the post–Cold War period, there will be situations where strategic importance takes precedence over preferences for democratization.Footnote ³⁰ Similar arguments have linked the importance of the recipient to the effectiveness of conditionality at the International Monetary Fund (IMF)Footnote ³¹ and World Bank.Footnote ³² The model developed in this study incorporates variation in strategic importance both across periods and across recipients within periods.

Heterogeneous Aid

An innovation of the model is that it allows for two types of aid: fungible and nonfungible. Fungible aid is defined as either accruing directly to the recipient government or financing programs the recipient government would have undertaken in the absence of aid, thus freeing up resources for other purposes. Nonfungible aid is defined as providing programs/services the recipient government would not have undertaken in the absence of aid that do not free up government finances for other purposes.

Recipient governments prefer fungible aid, whereas democratic donors prefer to provide nonfungible aid to nondemocratic recipients to minimize the likelihood that aid inhibits democratic reform. For a given recipient, the donor weighs the magnitude of the negative externality associated with decreased likelihood of democratic change against the greater effectiveness of fungible aid for buying favors from the government. When the allocation decision results in high levels of fungible aid, it increases the likelihood that aid will be associated with less democratic change.

How realistic is the idea that donors can alter the composition of their aid between fungible and nonfungible? Empirical evidence of aid fungibility is mixed.Footnote ³³ Collier suggests that in some recipients the likelihood of donor development projects replacing programs funded by the recipient government is low because the government is unable/unwilling to undertake any development projects in the absence of aid.Footnote ³⁴ Related work on the effects of aid suggests that these differ with regard to the type of assistance, time period, and/or identity of the donor, suggesting limits on fungibility.Footnote ³⁵ Recent studies and policy statements are consistent with donor attempts to limit fungibility in certain types of recipients. I show that the composition of aid in poorly governed countries suggests it may be less fungible than in well-governed recipients,Footnote ³⁶ and Dietrich demonstrates that donors bypass governments when giving aid in recipients with bad governance.Footnote ³⁷ Hilary Benn, former Secretary of State for International Development in the United Kingdom, puts a policy voice on these findings when he claims that the UK “finds practical ways to ensure that aid cannot be siphoned off. We can and do directly fund … ‘concrete things'… Or we can earmark aid for a particular programme of work in a sector and account for that money independently through a separate bank account. We do this in the education sector in Kenya, where the financial risk of handing over money to the government is too great.”Footnote ³⁸ Taken together, this suggests that although it is likely some aid is fungible, it is also likely that not all aid is fungible.

The ability to compare aid with more clearly fungible streams of government resources allows the question of fungibility to become a testable premise of the model, rather than an assumption accepted (or not) in the absence of evidence. I examine the relationship between oil revenue—a resource that often accrues directly to the government—and democratic change to see whether the oil revenue-democratic change and aid-democratic change relationship show similar trends over time and recipients. If aid is a predominantly fungible resource, it should have properties similar to oil revenue.

Modeling Foreign Aid

The model developed in this study is restricted to cases of a democratic donor considering aid to a nondemocratic recipient because these are the instances where donor concern regarding possible democratization seems most relevant. It adopts a similar structure to that used by Bueno de Mesquita and Smith: the donor offers a recipient aid in exchange for a policy favor that is costly for the recipient government to enact, what the authors refer to as an “aid-for-policy” deal.Footnote ³⁹ Examples of this include the United States buying votes at the UN with aidFootnote ⁴⁰ and Switzerland using aid to buy votes supporting its membership on the executive board of international financial institutions.Footnote ⁴¹ The offer is made and accepted only if it is incentive compatible for both donor and recipient.

A donor government (d), when deciding on a potential aid package to a recipient (x), will compare its utility when giving the aid to a baseline utility without giving the aid. This baseline utility can be written as follows:

where S _dt is the donor's utility function at time t for all purposes other than aid to the recipient and R _dt is the total amount of resources available to the donor government.

Two different types of recipients are modeled: those of average and high strategic importance. Recipients of average strategic importance are in a position to provide the donor with ω _t in utility, where ω _t is the benefit the donor derives from the policy concession and can vary over time as the international political climate changes. Recipients of high strategic importance in any period can supply the donor with θ in additional utility.

If the donor offers an aid package, the resources available to the donor government for other purposes are reduced by the amount of the aid, A. Aid can be a mixture of fungible aid (F) and nonfungible aid (N), such that the resources expended (and therefore not available for other purposes) are A = F + N and $\displaystyle{{\partial {S_{dt}}} \over {\partial F}} = \displaystyle{{\partial {S_{dt}}} \over {\partial N}}$ . Fungible aid produces a negative externality for the donor by decreasing the likelihood of democratic change in the recipient. The magnitude of the externality is captured by β _t F; β_t can vary over time as donor preferences regarding democratization change.Footnote ⁴²

The donor's utility function at time t if it enters into an aid-for-policy deal with the recipient can be written as follows:

where γ _xt is an indicator variable that takes the value of 1 when the recipient is of high strategic importance and 0 otherwise. The aid-for-policy deal is incentive compatible for the donor if U _dt,aid  ≥ U _{dt,no aid} :

Given the externality, the donor would prefer to give N rather than F in nondemocratic recipients. The magnitude of the cost associated with giving a unit of N is captured by (where $\left\vert {\displaystyle{{\partial {S_{dt}}} \over {\partial A}}} \right\vert$ is negative), whereas the magnitude of the larger cost associated with a unit of F is $\left\vert {\displaystyle{{\partial {S_{dt}}} \over {\partial A}} - {\beta _t}\;} \right\vert.\; $ However, the point of the deal is to buy a policy concession from the recipient government, which is assumed to prefer fungible over nonfungible aid. Given this, it takes less F to purchase the favor than N. To decide on the right mix of F and N to offer (if any), the donor must also consider the situation from the recipient's point of view.

The utility of the recipient government without aid is a function of the amount of resources it has to spend:

where R _xt represents total resources to the recipient government without aid. If the recipient government accepts an aid-for-policy deal, it incurs a cost associated with agreeing to the donor's demands for ω _t and θ:

where the recipient incurs the cost C _θ only if it is strategically important to the donor (γ _xt  = 1).

The donor supplies the recipient with aid in the form of F and N to “produce” enough utility for the recipient government to undertake the desired action. Fungible aid, F, directly increases the amount of resources the recipient government has at its disposal. Nonfungible aid does not free up government resources but may still provide a benefit to the recipient government—it may support programs the government values but would not have been able to/chosen to provide itself. The recipient government's utility under the aid-for-policy deal is given as follows:

where V _xt (N) is a function transforming nonfungible aid into utility. The recipient government is assumed to (weakly) prefer fungible to nonfungible aid, so that $\displaystyle{{\partial {U_{xt}}} \over {\partial F}} \ge \displaystyle{{\partial {U_{xt}}} \over {\partial N}}$ , or (equivalently) that $\displaystyle{{\partial {S_{xt}}} \over {\partial F}} \ge \displaystyle{{\partial {V_{xt}}} \over {\partial N}}.$ Footnote ⁴³ An aid-for-policy deal will be incentive compatible for a recipient when the following holds:

In a situation of perfect information, the donor can offer the recipient a basket of F and N that produces just enough increase in utility to compensate for the cost of granting concessions, so that equation (7) holds with equality. Obviously, the more highly the recipient values each unit of F and/or N, the less aid it will take to cover the cost of granting the concession; in these cases it is most likely that an aid-for-policy deal can be arranged that is incentive compatible to both donor and recipient. This suggests that small countries may be “bought” more cheaply because any given amount of funding will provide more benefit per person, and thus be more valuable, when there are fewer people. Additionally, assuming concave preferences for funding, poorer countries will have a higher value for each additional unit of funding, implying that buying favors will be cheaper when R _xt is lower. These are similar to conclusions reached by Bueno de Mesquita and SmithFootnote ⁴⁴ and Stone,Footnote ⁴⁵ and therefore not the focus here.

The novelty in this model lies in the donor's ability to give both fungible and nonfungible aid, and the negative externality imposed on the donor when it gives fungible aid. The higher the value of β _t , the more costly it is for the donor to give F relative to giving N. And, the greater the distance between $\displaystyle{{\partial {S_{xt}}} \over {\partial F}}$ and $\displaystyle{{\partial {V_{xt}}} \over {\partial N}}$ , the less valuable N is to the recipient relative to F. To determine whether to offer the aid-for-policy deal to a recipient, the donor will compare its utility without the deal with the utility it would receive maximizing equation (2) subject to the recipient's incentive compatibility constraint (equation 7). From the first-order conditions of this constrained optimization, the donor will minimize costs when the combination of F and N offered satisfy the following:

The left-hand side of equation (8) is the marginal rate of substitution between F and N for producing utility in the recipient; the right-hand side is the ratio of the costs to the donor from foregone utility of providing F relative to N. Equation (8) will hold when cost minimization is achieved through a mix of N and F (an interior solution). Corner solutions, in which the cost-minimizing aid package consists of only N or F are also possible. The donor will offer the recipient a package of aid if the minimum cost combination of F and N which satisfy equation (7) also satisfy equation (3).

Equation (8) highlights the relatively complex relationship between donor utility, recipient utility, and the negative externality β _t . First, there may be some recipients for which the left-hand side of equation (8) is always greater than the right-hand side: in this case if a deal is incentive compatible for the donor it will consist of only fungible aid (corner solution). In other cases, where the left-hand side is lower than the right-hand side for low levels of aid, the donor will include only N in the aid package up until the point where the next unit of N adds less value in terms of recipient utility than is saved for the donor by giving N rather than the higher cost F. If this point is reached before incentive compatibility is met for the recipient, the donor will minimize costs by providing a mixed package of N and F that satisfies equation (8), if it provides any aid at all.

Because S _dt (R _dt  − A), S _xt (R _xt  + F), and V _xt (N) are each assumed to have the usual concave properties of utility functions, the tradeoff of N for F that satisfies equation (8) changes as N and F change. An example can help illustrate the point. Suppose the recipient is at a point on its utility function where the next unit of utility can be purchased with 3 units of N or 2 units of F. Each unit of N costs the donor $\left\vert {\displaystyle{{\partial {S_{dt}}} \over {\partial A}}} \right\vert$ in utility and each unit of F costs $\left\vert {\displaystyle{{\partial {S_{dt}}} \over {\partial A}} - {\beta _t}} \right\vert$ .Footnote ⁴⁶ If $\displaystyle{{\partial {S_{dt}}} \over {\partial A}} \lt {\beta _t}$ for the extra unit of A required to purchase the same utility with N rather than F, then the donor will supply N; otherwise it will supply F. As the recipient receives more N the marginal utility increase associated with additional N will decline, meaning more N will be needed to offset a unit of F. On the donor side, as more A is supplied the decrease in S _dt (R _dt  − A) for each additional unit of A increases, meaning the donor is less willing to trade off increased A in the form of N to avoid the externality associated with F.

Several useful insights come from this setup. Beginning with recipients of average importance, envision a heterogeneous group deriving varying levels of utility from F and N at an initial time, period 1. A shock occurs, such as the end of the Cold War, decreasing strategic importance for the average recipient, ω _t ; this shock moves the countries into period 2. Within these average recipients, some were right at the incentive compatibility constraint for the donor in period 1, whereas others were well inside it. Those who were at or near the donor's incentive compatibility constraint will now fall outside of it when the value of ω _t falls, and will no longer be offered an aid-for-policy deal. Because recipients requiring the most F at any point are the most expensive for the donor, they are the most likely to be dropped from aid deals in period 2. Thus, the remaining pool of recipients receiving a deal will receive less fungible aid on average than those in period 1, and a higher proportion of their aid package will be nonfungible aid. The changing strategic importance leads to the expectation of a changing composition in aid, away from fungible aid. This follows from the fact that some recipients are dropped from period 1 to period 2, and holds even if the composition of aid to the remaining recipients is unchanged.

It is also useful to contemplate a scenario under which the composition of aid given to remaining recipients is altered by the donor. This could result from an increase in the size of the negative externality for giving fungible aid to a dictatorship, β _t , in the move from period 1 (for example, Cold War) to period 2 (for example, post–Cold War). An increase in β _t increases the cost of F relative to N. For those recipients that remain incentive compatible in period 2, aid will shift away from the more costly F toward the relatively cheaper N. Importantly, given recipient preference for F over N, this will mean an increase in A is necessary to maintain the minimum level of benefit to make the deal incentive compatible for the recipient. Holding strategic importance constant, for recipients still receiving an aid package total aid increases while fungible aid decreases.Footnote ⁴⁷ This decline in fungible aid suggests a decreased ability for recipient governments to use aid to thwart democratic change because less aid accrues to them for their discretionary use.

Within any period, the situation is different for recipients of high strategic importance; in general they will receive a higher proportion of their aid package as fungible aid than recipients of average strategic importance. This follows from the fact that these recipients require more aid to grant the higher-cost policy concessions, and returns diminish more quickly for N than for F because of the larger number of potential uses for F. Thus as aid increases, the difference between the amount of utility purchased with N and F also increases; minimizing costs as required by equation (8) will involve giving a larger proportion of the aid package in the form of F. It is still true that an increase in β _t across periods will cause the donor to shift toward N. However, within any period the composition of aid for recipients of high strategic importance is weighted more toward fungible aid. The different composition of aid across recipients of average and high strategic importance suggests that the relationship between aid and democratic change may also vary across these groups of countries within a time period.

Variation over Time

With the move from the Cold War to the post–Cold War period, average strategic importance (ω _t ) declined and distaste for authoritarianism (β _t ) increased. In response to this, donors give less fungible aid on average, leading to the hypothesis:

If observed changes in the aid-democratic change relationship are attributable to a shift away from fungible aid, then the same changes should not be observed for fungible government resources, such as oil revenue. Thus the model implies the following hypothesis:

Variation Across Recipients

Regardless of average changes across time, there are recipients in any period that are not fully democratic yet are in a position to provide a democratic donor with favors of high strategic importance. The model incorporates this heterogeneity, allowing for the greater benefit to the donor (θ) and cost to the recipient (C _θ ) in these situations. As shown, this results in an increase in fungible aid relative to recipients of average importance, both in absolute levels and as a proportion of the total aid package. This makes it more likely that the government in recipients of high strategic importance can use aid resources to impede democratic change, suggesting the following hypothesis:

As with variation over time, insights can be obtained by comparing the relationship between aid and democratic change with that between oil revenue and democratic change. There is no reason that being of only average strategic importance to outside donors should make a country less able to use fungible resources to prevent democratic change. If a difference in the aid-democratic change relationship between recipients of average and high strategic importance is the result of a difference in aid fungibility across these two types of recipients, then the same difference should not be observed in the oil revenue-democratic change relationship, implying the following hypothesis:

Dependent Variable

The dependent variable is an indicator of democratic change coded using changes in a country's score on the Polity2 measure from the Polity IV project.Footnote ⁴⁹ The Polity2 measure runs from -10 to 10, with higher numbers representing greater democratization. The dependent variable equals 1 if a country experienced an increase in its Polity2 score of three points or more from t-1 to t and 0 otherwise. The sample is restricted to countries with a Polity2 score of 7 or lower in t-1 because scores higher than that cannot increase by three points. Unlike Morrison, which considers a three-point change in the Polity score regardless of direction,Footnote ⁵⁰ the main analysis in this study examines only movements toward democratization. As Ulfelder notes, failure to control for the direction of the change conflates democratic transitions with democratic failures.Footnote ⁵¹ For regressions covering the Cold War period, the dependent variable takes the value of 1 in 78 of 1,645 observations (4.7 percent); for the post–Cold War the value equals 1 for 71 of 1,666 observations (4.3 percent).

I chose an indicator for a three-point change as the main dependent variable because it is less blunt then an indicator for full democratization. The question here is whether receiving more aid decreases the chance that a country will move toward democratization. This measure avoids situations in which movement from just below to just above a cutoff for democratization counts as a change, whereas much larger movements below the cutoff do not. Results are tested for robustness using different measures of democratic change.

Key Independent Variables

Data on aid are from the Organisation for Economic Cooperation and Development (OECD), which records aid commitments by year for all recipients from OECD donors and other donors that choose to report to it. The model I developed relates to democratic donors only; there is no assumption that authoritarian donors experience a negative externality from entrenching dictatorships. Therefore, total aid commitments minus any commitments from authoritarian donors are used. Aid is divided by population as reported in the Penn World Table, v.7.1Footnote ⁵² and the log of one plus aid per capita is used as the measure of foreign aid. A measure of the log of oil wealth per capita is also included.Footnote ⁵³ Aid, oil, and other independent variables are lagged by two years to ensure that they capture the value prior to the change from t-1 to t used to construct the dependent variable.

Control Variables

The log of income per capita and growth rate of income per capita (lagged one year because it is a growth rate) from the Penn World Table v.7.1 are included. Because a country's value in year t-1 on the Polity2 scale may affect its ability to further democratize, a lagged value for the Polity2 variable is included. Also included is a variable for previous transitions that counts the number of times a country has had a positive change of three points or more on the Polity2 index in the previous forty years because previous experience with democracy may be important. A time trend variable for year is included.

Aid, Oil, and Democratic Change

Table 1 presents the main tests for H1A and H1B, using a logit model with age, age-squared, and age-cubed variables included to account for temporal dependence.Footnote ⁵⁴ Model 1 reports results for the entire time period, 1973–2010. Model 2 reports results for the Cold War period. Because of the two-year lag, 1990 was chosen as a break point: aid for observations in 1990 was committed in 1988, prior to the end of the Cold War.Footnote ⁵⁵ Model 3 includes observations for 1993–2010.Footnote ⁵⁶ Standard errors are clustered on country; p-values are in parentheses.

Table 1.

Aid, oil, and democratic change

Notes: Dependent variable equals 1 if the Polity2 score changed by three or more points in a positive direction from t-1 to t. Logit analysis with robust standard errors clustered on recipient; p-values are in parentheses. *p < .10; **p < .05; ***p < .01.

The coefficient on aid is negative but not significant for the full period (Model 1). As Models 2 and 3 show, this masks heterogeneity across periods. During the Cold War, more aid is associated with a decreased likelihood that a country experiences democratic change. The same is not true in the post–Cold War, where the coefficient on aid is positive but not significant. A Wald test for equality of the coefficients for aid between Models 2 and 3 suggest that they are not equal (p < 0.02). This provides strong support for H1A: the relationship between aid and the likelihood of democratic change varies across periods as predicted. This is consistent with changes over time in strategic importance and donor preferences, and the ability of donors to alter the composition of aid in response. If the period is further restricted to the post-2001 “war on terror” period (not shown), the coefficient on aid is 0.399 (p = 0.04).Footnote ⁵⁷

To further probe the likelihood that a change in the composition of aid drives these differences over time, H1B examines the relationship between oil revenue and democratic change. The coefficients on oil revenue in Table 1 show no evidence that oil has become less likely to impede change over time in these countries. The coefficient is negative across regressions and increases in magnitude from the Cold War to post–Cold War, although the null of equality cannot be rejected (p = 0.35). Further evidence of the difference between aid and oil is the significant difference between the coefficient values for these variables in the post–Cold War period (p = 0.04).Footnote ⁵⁸

The empirical structure is designed to decrease the chance of reverse causation, which could hold with the lags specified only if democratization causes aid before the democratization occurs. Even if this occurs, given the comparative nature of the hypotheses, any explanation based on reverse causality would need to account for variation across periods in this relationship. Although not impossible, this is likely implausible. Furthermore, explanations consistent with the model can incorporate reverse causality; I discuss this in the online appendix.

Neither the model nor the empirical results should be taken as evidence that aid can cause democratization. The argument is that donors, when it fits their needs and preferences, allocate aid in a manner that does not prevent democratic change. This is not the same as claiming that they know how to bring about change. The analysis here captures a different question than that asked by studies examining whether aid targeted for democracy promotion actually promotes democratization.Footnote ⁵⁹ Instead, the present analysis engages with studies examining the relationship between the total amount of aid and the likelihood of political change in recipients.

In developing countries foreign aid—which comes from a donor—exhibits a change over time that is not evident for revenue from oil, providing strong support for H1A and H1B. There is no evidence that foreign aid in the post–Cold War period inhibits democratic change. Oil revenue, on the other hand, is associated with a decreased likelihood of change even after the end of the Cold War.

Strategically Important Recipients

Tables 1 and 2 show a change, on average, in the relationship between aid and the likelihood of democratic change over time. However H2A suggests that in strategically important recipients, the government may be able to obtain a high degree of control over aid resources even in the post–Cold War period. To test for differences in the relationship between aid and democratic change across recipients, Table 3 introduces an indicator variable that equals 1 if a country is one of the top five recipients of US military aid in a given year (which is not a component of the foreign aid examined here) and its interaction with aid, both lagged two years. This is meant to capture only the most strategically important countries, so is restrictive by design.Footnote ⁶⁴

Table 3.

Aid and democratic change for heterogeneous recipients

Notes: Dependent variable equals 1 if the Polity2 score changed by three or more points in a positive direction from t-1 to t. Logit analysis with robust standard errors clustered on recipient; p-values are in parentheses. *p < .10; **p < .05; ***p < .01.

US military assistance may not be the best proxy of strategic importance for all democratic donors. However, the United States is the largest bilateral aid donor and has significant influence with the major multilateral donors. It is important that any proxy for strategic importance for overall levels of aid pick up strategic importance to the United States. Additionally, for the most strategic cases, many North Atlantic Treaty Organization (NATO) donors increase aid as US military aid increases, suggesting that they are responding to the strategic importance of these countries.Footnote ⁶⁵ The use of US military assistance is not meant to imply that it is the only possible measure of strategic importance. Rather, it is one possible way to measure whether strategic importance—which may arise for various reasons—has an impact on the relationship between foreign aid and democratic change.

Table 3 explores whether the variation over time shown by the results applies regardless of a recipient government's strategic position, or if strategically important recipient governments are better able to manipulate aid for their advantage. The results suggest that the latter is more likely true. Models 8 and 9 report results for the Cold War and post–Cold War, respectively. The coefficients for the ln aid per capita term capture the relationship between aid and the likelihood of democratic change in recipients not classified as strategically important, and show the same pattern over time as that observed in Table 1. The coefficients on the interaction term between aid per capita and strategic importance, top 5*aid, are negative in both models and significant in the post–Cold War period. The results are consistent with strategically important recipient governments using aid to prevent democratic change even in the post–Cold War period. The larger-magnitude coefficient and increased significance for the variable top 5*aid in the post–Cold War show donors compensating for the decline in average effect in these particularly important recipients and highlight an increased divide between the two recipient types. Models 10 and 11 are analogous to Models 8 and 9, but with the addition of an interaction term top 5*oil. That interaction is not significant and including it does not change the pattern for aid. These results present strong support for H2A and H2B, showing that aid, but not oil, has a different relationship with the likelihood of democratic change in strategically important states.Footnote ⁶⁶

Morrison

Morrison argues that multiple forms of “nontax revenue,” including foreign aid and revenue from state-owned oil enterprises, have a similar effect of decreasing the likelihood of regime transition.Footnote ⁷¹ As a result of this, he concludes that they can be aggregated into a single category of nontax revenue for empirical analysis. The first column of Table 4 exactly replicates the results from Table 3, Model 1, of that study, with robust standard errors in parentheses.Footnote ⁷² The dependent variable is an indicator that takes the value of 1 if a country experienced a three-point change in its Polity score. This is similar to the measure used in Table 1 earlier, except that in Morrison's analysis the change in Polity can be either positive or negative. The time period is 1973–2001. The variable grants per capita is used as the measure of foreign aid. A central claim of the article is that “the particular source of nontax revenue—state-owned enterprises, aid, or other sources—does not make a difference: they all act similarly with regard to regime stability and the causal mechanisms.”Footnote ⁷³ Model 1 is presented as evidence of this: “As shown in Model 1 of Table 3, the coefficients on all three nontax revenue components are negative and significant. … This result is important in its own right, as it demonstrates that foreign aid, state-owned enterprise revenue, and other kinds of nontax revenue—including borrowing—have similar effects.”Footnote ⁷⁴

Table 4.

Analysis of Morrison Reference Morrison2009, Table 3, Model 1

Notes: Dependent variable equals 1 if there is a three-point change in Polity in either direction, 0 otherwise. Logit analysis with robust standard errors clustered by country in parentheses. Column (1) replicates Table 3, Model 1, from Morrison Reference Morrison2009. Columns (2) and (3) use the same data but for pre-1989 and post-1991, respectively. *p < .10; **p < .05; ***p < .01.

Column (2) presents results using the same data and model, but restricting the time period to pre-1989; column (3) does the same for the post-1991 period. As the table shows, the coefficient on grants per capita is significant only in the earlier period (for the post–Cold War, p = 0.66). A Wald test on the coefficients for grants per capita in columns (2) and (3) suggests they are unlikely to be equal (p = 0.07), indicating that the decrease in magnitude from the Cold War to the post–Cold War is significant. This sharply contrasts with the pattern observed for the coefficient on revenue from state-owned enterprises (SOE), which increases in magnitude over time and is significant only in the post-1991 period (for the Cold War, p = 0.52).Footnote ⁷⁵ The evidence is consistent with both H1A and H1B: there is a difference in the coefficient on aid across time periods and no evidence that the relationship of oil (included in SOE revenue) with regime change follows the same pattern.

Differences are not only due to the failure to differentiate across time. A closer examination of the data used by Morrison suggests that they may not be well suited for testing hypotheses regarding foreign aid. The variable grants per capita, used as a measure of aid, contains large values of grants for OECD countries (which are not generally considered aid eligible under international definitions) and excludes in-kind aid that is given to developing countries (which is usually included in measures of aid). This creates a sizeable difference between this variable and standard measures of foreign aid. Additionally, about two-thirds of the possible observations are dropped from the analysis in a nonrandom way because of issues of missing data.Footnote ⁷⁶ Even given these issues, the analysis reported in Table 4 shows no evidence of a significant negative relationship between the variable used to measure aid and the likelihood of regime change in the post–Cold War period. Instead, disaggregating the data into the Cold War and post–Cold War periods shows results consistent with those hypothesized earlier.

Implications Beyond Democratic Change

The studies by Bueno de Mesquita and SmithFootnote ⁷⁷ and AhmedFootnote ⁷⁸ focus on survival of individual leaders or governments, respectively, rather than the likelihood of democratic change. The model I developed allows donor preferences regarding democratization to vary across time. It is not clear that the donor preference argument extends exactly to leader or government survival. Democratic change can occur without a change in leadership, and changes in government or leadership do not necessarily correspond with democratic change: many involve the transfer of power from one authoritarian ruler to another,Footnote ⁷⁹ or the election of a new leader/party within a democracy.

Despite the difficulties in specifying an exact parallel with the model, one implication from the model should apply: if aid was ever likely to prop up authoritarian leaders, it should not do so on average in the post–Cold War period. The studies by Ahmed and Bueno de Mesquita and Smith claim that aid reduces the likelihood of government or leader turnover in authoritarian regimes. If this claim withstands scrutiny for the post–Cold War period, it poses a challenge to my main argument.