Can democratic transition lead to more foreign aid inflow? A synthetic control method analysis of Senegal, 1985-2018

Abstract

This paper is concerned with the question of whether democratic transition causes more foreign aid inflow to recipient countries.By focusing on Sub-Saharan Africa, a novel econometrics method, the synthetic control method (SCM) developed by Abadie et al. (2010), is applied to assess the causal effect of a "treatment", i.e., democratization.The treatment unit is Senegal, which underwent democratization in 2000 and has since been a stable democracy; the untreated units are five other Sub-Saharan countries.The results indicate that democratization resulted in the "treated" country, that is, Senegal receiving significantly more foreign aid than it would have received if it had remained an autocracy, a finding that is robust to various robustness checks.Converting the detected extra foreign aid into an extra growth rate indicates a substantial (3.217 percentage points) additional growth rate for Senegal, ceteris paribus.However, the results should be interpreted with great caution, as they may not be generalizable and applicable to all cases; that is, general policy implications cannot be drawn based on a single case.

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