Honors Thesis Spotlight: The Effects of U.S. Foreign Aid on Recipient Countries’ Economic Development

While the U.S. has a long history of giving foreign aid to developing countries, recent scholars are asking if foreign assistance is advantageous to recipient countries. The quest to measure the effectiveness of foreign aid is ongoing and increasingly fixates on outcomes of support rather than the amount provided. Congress and the Paris Declaration—which seeks to increase the quality of foreign assistance—are currently evaluating these outcomes. This thesis assumes a similar focus; the author identifies and analyzes correlations between U.S. foreign aid received and economic growth in 70 developing countries. 

This project follows economist Georgios Karras’ model to measure the effects of foreign aid on economic development. Karras’ model—as well as other studies—focuses broadly on all forms of support. Since this project focuses specifically on U.S. foreign assistance, slight alterations to Karras’ model were made. The study utilizes the Total Assistance (TA) variable, which accounts for aid given exclusively by U.S. agencies per year. This TA variable is further divided by the population and real GDP of the recipient countries, which refers to the yearly value of goods and services in the economy adjusted for inflation. These demographic factors result in the variables TA/Pop and TA/GDP. Initially, a simple linear regression test assessed the relationship between TA/Pop and TA/GDP, and both variables were statistically insignificant. The independent variables were then transformed to account for the skewness present in the simple linear regression test.

A multilinear regression test revealed that TA/GDP was not a significant variable—however, TA/Pop was. TA/Pop as a statistically significant variable indicates that countries with larger populations generally receive less foreign aid. As a result, a good indicator of economic growth is the total assistance per person in a country’s population. With these two findings, the study concludes that foreign assistance better serves countries with smaller populations.

This study answers the direct research question on aid effectiveness while adding to the information gap that clouds scholarship on the topic. The researcher references the “black box” as an inspiration for their study: a term referring to the unclear conversation about foreign aid effectiveness. Conclusions in this study help demystify this parcel of public policy concerning population. While more research is necessary on the topic, the correlation between population size and aid is a step forward.

Allison Rachael Lang (pictured below) is a graduate from the College of Social Sciences at Florida State University. This post is a summary of Allison’s honors thesis, written by COSSPP Intern Jacqueline Rao. You can learn more about Allison here. You can learn more about this project here.

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