It has
been argued that donor countries use foreign aid — by providing and potentially
terminating it — as a “carrot” and stick” approach to shape a recipient
country’s behaviour.
Research
from the Lee Kuan Yew School of Public Policy has found new evidence that
foreign aid can be used as a “stick” by donor countries, but not necessarily a
“carrot”.
In
fact, the study finds that increasing foreign aid often negatively impacts
bilateral relations, something that has become more pronounced since the end of
the Cold War, in politically stable regions, and in countries where both the
United States and China are donors.
In the
paper, Can Money Buy Friendship? Evidence from International Aid and Political
Relations, Assistant Professor Zheng Huanhuan utilises data of bilateral aid
from 47 donors to 194 recipient countries between 1973 and 2013, and shows that
cutting foreign aid actually strengthens bilateral relations, but no evidence
to indicate that increasing foreign aid improves relations further. This
outcome provides evidence, therefore, that foreign aid is often used by donor
countries as a “stick” to urge the recipient country to improve bilateral
relations, but that strong relations between the two countries cannot
necessarily be “bought”.
The
study finds that increasing foreign aid often negatively impacts bilateral
relations, something that has become more pronounced since the end of the Cold
War, in politically stable regions, and in countries where both the United
States and China are donors.
WHY
CAN’T MONEY BUY FRIENDSHIP?
“Foreign
aid as a ‘stick’ works for countries that receive aid from heterogeneous donors
that compete for influence in their markets,” said Dr Zheng. “The competition
for influence among donors with distinct political pursuits in the
international arena gives the recipient country an incentive to switch their
support for donors.”
In
addition, while donors reward countries that they have a good relationship with
by providing more aid, recipient countries do not necessarily respond to
increased ODA by improving relations with the donor, but instead are motivated
to strengthen relationships with countries that have cut aid.
The
study also found that donor countries often compete with each other to “woo”
recipient countries into a closer relationship by giving more aid, a dynamic
that can result in recipient countries switching between competing donors to
“optimise foreign aid”.
For
example, a recipient country could change from being pro-US to pro-China after
receiving aid from the former, in order to receive more funds in the future
from the latter.
“Donors
may compete with each other to win friendship from the recipient countries,
especially when they have distinct political pursuits in the international
area,” said Dr Zheng. “This gives recipient countries the incentive to switch
among competitive donors to optimise the amount of aid received.”
THE
INFLUENCE OF CHINA
An
important component of the study was the dynamic brought about by China’s rise
from being a major recipient country to one of the leading donor nations since
the 2000s.
The
study tested the “competition channel” hypothesis, and found that countries
that tend to stand closer to China, the only socialist country among the major
donors, typically leads to colder relations with capitalist countries that are
major donors, such as the US.
China
Aid project Nurek
China
Aid project in Nurek, Tajikistan. (Photo credit: Prince Roy
For
example, recipient countries receiving aid from both China and other major
donors, could switch its friendship back and forth between China and the US,
leading to a negative association between aid and political relations.
However,
for countries that China has never donated to, the recipient government has no
incentive to switch among major donors who share a common political stance, as
this could weaken their relationship with another major donor, such as Great
Britain.
If the
competition channel holds true, we would observe a negative relationship of aid
and political relationships between countries that have received aid from both
China and other major donors who are competing for influence. In contrast, such
a negative relationship should be absent from countries who have never received
aid from China, as these countries witness limited competition between donors.
Breaking
the recipient countries into two groups, according to whether not they have
received ODA from China, the study supported the competition channel
hypothesis, finding that more aid results in weaker political relations for
countries who receive aid from China and other major donors.
“Countries
with troubled political climates or poor policies are not particularly more
sensitive to aid cuts than other countries,” Dr Zheng said. “The necessary
condition is the presence of competitive donors.”
The
study also analyses the “conflict channel”, which poses the hypothesis that
increased aid can lead to deteriorating relationships if aid provision is out
of sync with the expectation, or actual needs of the recipient country, or if
there are disagreements in how the aid is implemented.
The
study found that these conflicts are less likely to occur if the two countries
share political ideologies, legal systems, languages, or if there has been a
colonial relationship between the two countries in the past. The study found
that this relationship exists.
“Donors
often expect to sweeten the relationship with the recipient countries, but this
study shows that they often do not get what they expect,” Dr Zheng said.(Authored by Global-is-Asian)
