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Freytag, Andreas
Heckelman, Jac C.
Year of Publication: 
Series/Report no.: 
Jena economic research papers 2011,017
Foreign aid, especially official development assistance (ODA), has received increasing criticism in past decades. In particular, it has been put into question if and to what extent aid can help foster the aims for which it has been paid. In most cases, it seems that there is no discernable effect or even a negative effect of ODA on economic development. One reason for aid ineffectiveness may be seen in a lack of good governance on the side of the recipients. It has been argued that aid should concentrate more on creating better institutions. In the past 20 years, democracy promotion has become a pillar of USAID's mission and the funding for democracy and governance has steadily increased. The transition economies in particular have received special attention upon the fall of the Soviet Union. We assess the success of this aid by testing whether US aid is enhancing democracy in 26 transition countries. Using Freedom House Nations in Transit data, we find that in simple linear panel regressions aid has generally not been a significant factor in a country's overall democracy score. However, aid has significantly contributed to certain components of the democracy score, namely civil society, electoral process, judicial framework, and media independence. In addition, the impact of aid is found to depend on the number of years of past central planning. Countries having a history of less than 50 years of central planning had a significantly negative association to aid, whereas countries with more than 65 years of central planning benefited from greater aid.
transition economies
Document Type: 
Working Paper

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