The economic effects of winning coalition size on the aid‐growth nexus

Abstract

AbstractObjectiveDespite a plethora of studies on the relationship between foreign aid and economic growth of the recipient countries, there is no consensus. We argue that the size of the winning coalition dictates the decision on how the aid capital is used because the top priority of national leaders is staying in power. To this end, we investigate how the size of the winning coalition affects the relationship between foreign aid and economic growth.MethodsTo empirically test the effects of the size of the winning coalition on the aid‐economic nexus, we test 82 developing countries from 1960 to 2010. To address the methodological issues including heteroskedasticity, autocorrelation, overdetermination, and endogeneity, we employed a two‐step generalized method of moments estimation technique.ResultsOur analysis reveals that the size of the winning coalition affects how the aid capital is used, which in turn significantly affects economic growth. The larger the winning coalition, the better economic growth.ConclusionThe size of the winning coalition significantly affects the economic effects of foreign aid on the recipient country's economic growth. In terms of policy implications, international donors may specify how the aid capital is allocated to improve the recipient country's economic infrastructure.