The Uses and Abuses of Foreign Aid

• Published date: 01 September 2013
• DOI: 10.1177/1065912912456097
• Date: 01 September 2013
• Author: Daniel Yuichi Kono,Gabriella R. Montinola
• Subject Matter: Articles

Political Research Quarterly

66(3) 615 –629

© 2012 University of Utah

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DOI: 10.1177/1065912912456097

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Between 1960 and 2010, rich countries gave poor ones

more than three trillion dollars in development aid.1 The

return on this investment has been poor: on average, for-

eign aid has failed to promote savings, investment, and

growth in recipient countries (Doucouliagos and Paldam

2009). For example, while sub-Saharan Africa received

$714 billion in development aid from 1960 to 2006

(Easterly 2008, 14), its per capita income grew by less

than 1 percent per year over this period,2 and its poverty

rate has scarcely changed (Chen and Ravallion 2004).

These grim statistics beg the question: Why has develop-

ment aid failed to achieve its goals?

One possible answer is that it is simply not used for its

intended purpose. Research shows that aid is fungible

(Feyzioglu, Swaroop, and Zhu 1998): that is, aid given for

one purpose allows governments to shift resources to other

uses. If these other uses do not encourage economic growth

or development, neither will aid. A recent New York Times

article on Uganda illustrates this point.3 Although Uganda

has received considerable foreign aid designated for health

care, its hospitals remain starved for resources. This is

because foreign aid has allowed the government to cut its

own health care spending: specifically, for each additional

aid dollar received, Uganda cut its health care spending by

57 cents (IHME 2010). Although it is not clear where the

budgetary savings went, a concurrent rise in military

spending suggests that Uganda exploited its development

aid to reallocate funds from health care to the military. If

so, it is no surprise that this aid did little to improve the

lives of Uganda’s people.

The Uganda example suggests that governments may,

more generally, divert aid funds from developmental uses

to military spending. This would be disturbing in at least

two ways. First, military spending does not promote

development: studies show that its impact on growth is

nonexistent at best and negative at worst (Dunne and Uye

2009). Second, military resources are often used to

repress domestic dissent. For example, in the “Arab

Spring” of 2011, governments across the Middle East and

North Africa used their armed forces to intimidate pro-

democracy protesters. If development aid is generally

diverted to military spending, it could thus have perni-

cious economic and political effects.

Whether development aid generally boosts military

spending is unclear. Although Feyzioglu, Swaroop, and

Zhu (1998) conclude that aid is fungible, they find no evi-

dence that it spills over into the defense budget. Cashel-

Cordo and Craig (1990) reach the same conclusion.

However, both Collier and Hoeffler (2007) and Khilji and

Zampelli (1994) find that development aid boosts

456097PRQXXX10.1177/1065912912456097Po

litical Research QuarterlyKono and Montinola

1University of California–Davis, Davis, CA, USA

Corresponding Author:

Gabriella R. Montinola, University of California–Davis, Department of

Political Science, One Shields Avenue, Davis, CA 95616.

Email: grmontinola@ucdavis.edu

The Uses and Abuses of Foreign

Aid: Development Aid and

Military Spending

Daniel Yuichi Kono1 and Gabriella R. Montinola1

Abstract

Research shows that foreign aid promotes economic development in democracies but not in autocracies. Although

explanations for this phenomenon vary, a common theme is that autocracies are more likely to misuse aid. We provide

evidence of such misuse, showing that autocracies are more likely than democracies to divert development aid to the

military. Theoretically, we build on “selectorate” models in which autocrats respond to aid by contracting civil liberties.

Because this strategy requires military capacity, autocracies but not democracies should spend aid on the military. We

support this hypothesis empirically, providing further evidence that autocracies misuse foreign aid.

Keywords

development assistance, aid fungibility, political institutions, military spending