Pernicious Foreign Aid?: A Political Economy of Political Institutions and the Eect of Foreign Aid

Abstract

Incumbent political leaders risk being deposed by challengers within existing polit- ical rules and by revolutionary threats. I examine how the survival incentives created by these dual threats shape the eects of aid on government policy. I use Bueno de Mesquita et al's (2003) selectorate politics theory to examine the relationship between winning coalition size -the number of supporters a leader requires to retain o¢ ce- and policy choice. In large winning coalition systems, the public goods focus of public policy means that foreign aid improves societal welfare and economic development. In contrast, in small coalition systems the private rewards focus of policy induces a loyalty norm towards incumbents which enables leaders to skim oaid resources for themselves and their cronies. Further since in small coalition systems aid gener- ates few of the societal bene…ts that it would under large coalition institutions, aid

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