Do Donors Reduce Bilateral Aid to Countries with Restrictive NGO Laws?: A Panel Study, 1993-2012

Kendra Dupuy and Aseem Prakash. "Do Donors Reduce Bilateral Aid to Countries with Restrictive NGO Laws?: A Panel Study, 1993-2012." Nonprofit and Voluntary Sector Quarterly, 2018, 47(1): 89-106.

Foreign aid contributes to about 10% of gross domestic product (GDP) of developing countries. To distribute aid in recipient countries, Western donors increasingly rely on nongovernmental organizations (NGOs). Yet, since the mid-1990s, 39 developing countries have adopted laws restricting the inflow of foreign aid to NGOs operating in their jurisdictions. In response to these restrictions, have bilateral donors reduced aid,  either  as  a  punishment  or  because  they  cannot  find  appropriate  NGOs  for  aid  delivery?  We  explore  this  question  by  examining  a  panel  of  134  aid-receiving  countries  for  the  years  1993-2012.  We  find  that  all  else  equal,  the  adoption  of  a  restrictive NGO finance law is associated with a 32% decline in bilateral aid inflows in subsequent years. These findings hold even after controlling for levels of democracy and  civil  liberties,  which  suggests  that  aid  reduction  responds  to  the  removal of  NGOs from aid delivery chains, and not to democracy recession.

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