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US foreign aid and economic policy concessions*

ABSTRACT Why do donors continue to provide foreign aid despite its failure to help poor countries over the past several decades? While some scholars argue that foreign aid is purely for humanitarian purposes, others assert that such aid serves as a tool to pressure recipient countries into accepting policy concessions. In this study, we subject these arguments to empirical testing using a dataset that integrates the amount of US aid and economic policies of recipient countries for 1995–2012. The findings suggest that aid decisions correspond to the interests of the United States, such as policy concessions in economic and business liberalization. However, an increase in US aid is not directly associated with further economic reforms in recipient countries. We conclude that US foreign aid programmes are strategic in nature and successful not in alleviating economic problems in recipient countries but, at the very least, in buying their policy compliance.