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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 04-1999:
THE POLITICS OF FOREIGN AID

Wolfgang Meyer and Pascalis Raimondos-Møller

Abstract: Why do donor countries give foreign aid? The answers found in the literature are:

(i) because donor countries care for recipient countries (e.g. altruism), and/or (ii)

because there exist distortions that make the indirect gains from foreign aid (e.g.

terms of trade effects) to be larger than the direct losses. This paper proposes a

third answer to the above question, namely that aid is determined through the

domestic political process of the donor country. The paper demonstrates how

foreign aid affects the donor country’s income distribution and how, in a direct

democracy, the majority of voters might benefit from foreign aid giving even

though the country’s social welfare is reduced.

Keywords: foreign aid; politics; majority voting.; (follow links to similar papers)

JEL-Codes: F35; (follow links to similar papers)

20 pages, March 2, 1999

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