Donor Country, Political Business Cycle
In this study, I explore the political budget cycle effect on foreign aid spending on the extensive and intensive margins. I find evidence to support the statement that foreign aid is not neutral to the existence of elections but is in fact manipulated by the incumbent government one year before an election. This study is an improvement from the recent literature in two distinct ways. First, I explore the overall election cycle effect for the different sub-categories of official development assistance (ODA): debt relief, infrastructure, humanitarian aid, multi-sector aid, production aid, program aid, and social infrastructure aid. Second, I look at the compositional changes of total ODA spending one year prior to an election. To avoid endogeneity problems, I focused on donor countries with fixed election dates, making elections exogenous. I included countries without fixed election dates for comparison. I found that some types of assistance have a positive causal donor election cycle effect while others have no significant donor election cycle effect. My results also indicate donor governments shift aid spending to categories that are visible to voters one year prior to an election. The results are robust to the extent that the analysis includes numerous control variables to address the possibility of omitted variable bias.
Master of Arts
Major Research Paper