Foreign Aid and Government Survival

How does foreign aid affect government stability? Previous research presents mixed answers to this question. We start with the largely uncontroversial finding that donor interests are major determinants of aid allocation. Donors may use aid to support loyal government leaders; on the other hand, aid suspensions are a form of foreign economic pressure on recipient governments. This foreign policy tool can only work if it generates political costs or benefits for the leaders of recipient countries. Consequently, the leader of a government that comes under pressure (when the donor suspends aid disbursements) should be more likely to lose office than a leader who does not, or a leader who receives additional aid. This article presents a theoretical argument linking changes in foreign assistance levels to government instability. We test an observable implication of the theoretical argument using cross-country timeseries data on economic aid and recipient leaders’ political survival.