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Abstract

Using cross-country panel data, we explore the extent to which the variation over time in measures of democracy and political rights can be explained by changes in aid inflows, thus providing direct evidence on the impact of innovations in donor policy on the quality of recipient governance. We distinguish between the short-run and long-run effects of changes in aid. Our results are very different from those based on cross-country variation in aid inflows. We find evidence of large differences between the effect of aid for political reform and the effect of other types of aid in aggregate. These effects also depend on the recipient country's initial level of political development. There is no evidence that aid intended for political reform has achieved its objective, and in some countries, it may be counterproductive. However, aggregate aid can have a beneficial effect on political rights.