Uncovering the Democratizing Effect of EU Aid: The Rotating Council Presidency as an Instrument
Draft
Abstract
While some scholars have argued that Western aid has helped countries democra- tize, there are many who doubt that aid is good for anything. Much of the debate in the cross-national literature stems from the difficulty of identifying the true effects of foreign aid given its non-random allocation with respect to unobservable country-level characteristics. This paper considers the case of European Union (EU) aid, and pro- poses the use of the rotating Presidency of the European Council as an instrument to help identify the true effect of aid on democratization. EU members are assigned to the Presidency in a manner exogenous to the process of democratization in the devel- oping world: what counts for assignment is the position in the alphabet of the first letter of the country’s name. EU Presidencies enjoy significant agenda-setting power which gives them influence over aid allocations. Using characteristics of the presiding country as instruments to predict aid provides leverage over the problem of estimating the effect of assistance on democratization. The instrumented effect of foreign aid on democratization indicates that, at least for the case of the EU as an actor, foreign aid has been good for democracy.
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