Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307357 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11427
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper explores whether foreign aid is self-interested, exploiting the timing and size of major mineral discoveries. We first analyze the effect a resource discovery in a two-by-two donor-recipient model with conflict about natural resources, using a contest success function. We then estimate the effects of major discoveries using a gravity model for a large panel of countries. Our empirical estimates are consistent with the predictions of the theoretical model. Results show that recipient countries that experience major discoveries receive more, not less, bilateral aid, all else equal. Our benchmark result is that following a mineral discovery, a recipient country receives 36% more aid compared to a country without such a discovery. That is a paradox considering that major discoveries are associated with an effective relaxation of international borrowing constraints.
Subjects: 
bilateral aid
self-interested donors
mineral discoveries
contests
JEL: 
E00
F30
O10
O20
Document Type: 
Working Paper
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