Foreign Aid Responses to Political Liberalization

This paper analyzes the impact of political liberalization on receipt of foreign aid. It distinguishes different types of donors facing different constraints in rewarding democratization with foreign aid, notably bilateral donors, the World Bank, and the European Commission. Based on a sample of 174 recipient countries from 1995 to 2009, the paper jointly examines short-term dynamics and long-term effects of sustained liberalization. Except for the World Bank, donors react to regime change. Bilateral donors are found to reward political liberalization in the second year after transition.