Democracy and foreign assistance in West Africa: A search for the correlation between aid and liberty (Preliminary Findings) Cameron Weber Omer Siddique

Democracy and foreign assistance in West Africa: A search for the correlation

between aid and liberty(Preliminary Findings)

Cameron WeberOmer Siddique

New School for Social Research

Aid and Liberty in West AfricaPurpose of research is to explore aid as something external to

internal political economy of recipient nation.

Aid and Liberty in West Africa

“Little else is requisite to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

Adam Smith


8 countries under study share common monetary policy in West Africa Monetary Union (WAMU) administered by BCEAO central bank:

Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo

Aid and Liberty in West Africa* Aid defined as bilateral Official Development Assistance

(ODA) and Concessional Multilateral Lending (e.g. IMF, World Bank and African Development Bank)

* Data from World Bank Development Indicators, Freedom House (we are using average of political rights and civil liberties indicators) and African Elections Database

* Constant Year 2000 US Dollars* 30 Year Period 1975-2005 (15 years of Cold War and 15

years post-Cold War)

Country Form of Government (2005)

Population (millions) Freedom House Index(with 1 being most free)

1975 2005 1975 2005

Benin Republic 3.1 8.2 6.5 2

Burkina Faso Republic 6.2 13.2 5 4

Cote d’Ivoire Republic (currently under international mediated power-sharing agreement)

6.8 18.2 5.5 6

Guinea-Bissau Republic 0.7 1.7 6 3.5

Mali Republic 5.9 13.5 7 2

Niger Republic 4.8 14.0 6.5 3

Senegal Republic 4.8 11.7 5 2.5

Togo Republic 2.3 6.1 6.5 5.5

Average 4.3 10.1 6 3.2

Total 35 87


Country National Income(constant $’s millions)

Income Per Person (constant $’s)

Aid as Percentage of National Income (%)

Total Aid 1975-2005 ($ billions)

1975 2005 1975 2005 1975 2005

Benin 889 2,727 861 1005 8 14 1.3

Burkina Faso

1,060 3,433 763 1111 9 21 1.8

Cote d’Ivoire

6,288 10,230 2,434 1,437 3 22 2.6

Guinea-Bissau

121 213 1,019 736 15 37 0.4

Mali 1,221 3,294 742 919 15 22 2.2

Niger 1,181 2,199 985 700 13 25 1.8

Senegal 2,288 5,467 1468 1584 8 12 1.3

Togo 763 1,480 1708 1319 5 5 0.1

Average 1247 1101 10 27

Total 11.5



We look at three proxies for liberty:

1)Political rights and civil liberties2)Freely-Elected Leadership3)Fiscal Accountability

23

45

67

Rig

hts

/ L

ibe

rtie

s In

die

x

0 50 100 150 200Aid as % of Economy (GDP)

ave Fitted values

Aid and Freedom House Indicators

Note Guinea-Bissau as outlier with aid > 100%

23

45

67

Rig

hts

/ L

ibe

rtie

s In

de

x

0 20 40 60 80Aid as a % of the Economy (GDP)

ave Fitted values

Aid and Freedom House Indicators - Revised



Regression analysis shows that for every 1% increase in aid, Freedom House indicator improves 0.03. For example if aid per person increases $1 indicator improves from 5 to 4.97.

Results show statistical significance (t-stat is 10.44 and R-Squared is .75)

Aid and Liberty in West AfricaIt should be noted that correlation does not necessarily

mean causation. Bourguigon and Sunberg (2007), “The empirical

literature on aid effectiveness has yielded unclear and ambiguous results. This is not surprising given the heterogeneity of aid motives, the limitations of the tools of analysis, and the complex causality chain linking external aid to final outcomes.”

Bourguignon, F. and Sunberg, M. 2007. “Aid Effectiveness – Opening the Black Box.” American Economic Review; Papers and Proceedings, 97(2): 316 – 321.


For reductio ad absurdum example of statistical meaning without economic meaning, would a 100% increase in aid then imply the movement of Freedom House index from 5 to 2 ?

See D. McCloskey The Rhetoric of Economics 1998 on statistical v. economic significance.

Country Presidential Electoral HistoryYears of Freely-Elected Leadership

(1975 – 2005)

Benin 1960-1972 Military governments1972-1991 Marxist – Leninist dictatorship1991-2006 KEREKOU[2006-Present YAYI]

15(1991-2005)

Burkina-Faso 1960-1977 Military Coups1977-1980 LAMIZAWA1980-2002 Military and Transitional2002-Presemt COMPAORE

4(1977-1980)

1(1991)

4(2002-2005)

Cote d’Ivoire 1960-1990 HOUPHOUET-BOIGNY1990 HOUPHOUET-BOIGNY1990-1995 HOUPHOUET-BOIGNY1995-1999 BEDIE1999 - Present Coup and Instability

1(1990)

Guinea-Bissau 1974-1980 CABRAL1980-1991 Military Dictatorship1991-1994 Transitional1994-1999 VIEIRA1999 Coup - Transitional2000-2003 YALA2003 Coup - Transitional2005-Present VIEIRA

15(1991-2005)

Aid and Liberty in West Africa: Democratic Leadership

Mali

1960-1991 Dictatorship1991 Coup1991-2002 KONARE2002-Present TOURE

15(1991-2005)

Niger

1960-1991 Military Rule1991-1996 Transition1996-1999 Coup1999-Present TANDJA

6(1991-1996)

7(1999-2005)

Senegal

1960-1968 SENGHOR 1968-1978 SENGHOR 1978-1983 SENGHOR1983- 2000 DIOUF2000-Present WADE

28

(1978-2005)

Togo

1960-1963 OLYMPIO1963- 1967 GRUNITSKY1967-2005 EYADEMA2005- Present GNASSINGBE

3(1991-1993)

Average Average Years Freely-Elected Leadership 1975-2005 12 years


0.5

11.

5

0 50 100 150 200aid % gdp

Elected Fitted values

1: Elected leadership in office 0: Non-elected leadership in officeAid and Freely-Elected Leadership

With Guinea-Bissau outlier of aid > 100% of GDP

0.2

.4.6

.81

0 20 40 60 80aid % gdp

Elected Fitted values

Aid and Elected Leadersip - Revised


Probit regression shows $1 increase in aid increase likelihood of freely-elected leadership by 3.8%

Statistically significant with z-stat equal to 5.79 and pseudo R-Squared .1326 (note control variables not used in this regression).

Country Public Debt% of Economy (GDP)

Increase in Debt Share of Economy

(1975-2005)

Increase of Aid Share in Economy(1975-2005)

1975 2005

Benin 9 65 622% 75%

Burkina-Faso 6 60 900% 133%

Cote d’Ivoire 15 88 487% 633%

Guinea-Bissau 7 315 2,156% 147%

Mali 28 86 207% 47%

Niger 9 80 789% 92%

Senegal 13 64 392% 50%

Togo 22 99 350% 0%

Average 14 107 664% 147%

Aid and Liberty in West Africa: Fiscal Accountability

Country Public Debt Per Person(Current $)

Aid Per Person(Current $)

1975 2005 1975 2005

Benin 25 209 17 41

Burkina-Faso 11 145 15 50

Cote d’Ivoire 147 495 15 7

Guinea-Bissau 29 50 12 423

Mali 55 210 22 51

Niger 21 126 26 37

Senegal 57 297 26 59

Togo 69 239 17 14

Average 52 192 19 85


02

00

40

06

00

80

0

0 50 100Aid per capita (current US$)

PPG per cap Fitted values

Aid Per Person and Public Debt Per Person - Revised

Regression shows that when aid per person increases by 1% of GDP public debt per person increases 0.4%.


Aid and Liberty in West AfricaConclusionsInconclusive on relationship between aid and civil and political rights due to

causation question, however rights have increased historically.

Public debt and aid move together.

Aid and debt have decreased since the end of the Cold War.

Freely-elected leadership has improved since the end of the Cold War, with Cote d’Ivoire being the exception.

West Africa WAMU countries received $11 billion in aid from 1975 to 2005 and public debt per person has increased more than 600% as a percentage of the economy since 1975, while average per person income has decreased from $1247 in 1975 to $1101 in 2005.

Aid and Liberty in West AfricaEconometrics Methodology:Liberty = f(Aid; Conditional Variables)Conditional Variables, investment as % of GDP, general

government consumption as % of GDP, and trade (exports + imports) as % of GDP.

As investment increases an economy is supposed to grow and liberty increases as individual capacities increase.

As government consumption increases government may need to seek external borrowing other than aid.

As trade increases economy is supposed to grow and thus capacities (e.g. liberties) increase. However, if imports are military or other non-productive government spending then increased trade does not imply increased liberty.

Aid and Liberty in West Africa - Empirical AnalysisDependent Variable: Freedom House IndexIndependent Variables Equation 1 Equation 2 Equation 3

Constant 4.38 4.9 5.38(10.44) (11.41) (11.23)

Aid (% of GDP) -0.009 -0.02 -0.03(-3.16) (-5.81) (-4.65)

Aid (% of GDP) Squared 0.00(2.21)

Investment (% of GDP) 0.01 0.001 0.00(1.29) (0.08) (0.03)

Government Consumption (% of GDP) 0.03 0.005 0.00(0.90) (0.16) (0.01)

Trade (% of GDP) 0.01 0.01(1.91) (1.62)

Dummy (Guinea-Bissau) 2.05 1.84(5.19) (4.55)

Adjusted R-Squared 0.08 0.16 0.17t-statistics are in parentheses

Aid and Liberty in West AfricaAid is statistically significant in explaining liberty index. The negative sign

implies that as aid increases liberty index increasesThough it is ‘economically’ insignificant coefficients in all the equations is very

lowControl variables are statistically insignificant except for trade which is

marginally significant (at 10% significance level)We have added dummy for Guinea-Bissau because Aid (% of GDP) is very high

in some years. The dummy is statistically significant.Adjusted R-Squared also increases due to inclusion of dummy.The squared term of aid is also statistically significant and its coefficient is

positive, implies decreasing and then negative returnsThis together with negative sign on linear term of aid implies that at very high

levels of aid liberty may decline


Debt = f(Aid; Conditional Variables)Conditional variables are the same as in previous analysisThe impact of these variables might be inconclusiveAn increase in investment may or may not lead to decrease in

debt. If investment is financed by external resources, debt might increase and it may take time for this investment to realize in economic growth and hence reduction in debt

High government consumption might lead to increase in debtTrade, if its major portion is imports, might lead to an increase in

debtAn increase in aid, however, is supposed to lead in increase in debt

burden

Debt and Aid in West Africa - Regression Analysis

Dependent Variable: Publically Guaranteed Debt (% of GDP)

Independent Variables Equation 1 Equation 2

Constant -23.64 -15.92

(-8.25) (-7.08)

Aid (% of GDP) 0.4 0.25

(20.71) (14.19)

Investment (% of GDP) 0.39 0.14

(4.71) (2.34)

Government Consumption (% of GDP) 0.82 0.42

(3.57) (2.31)

Trade (% of GDP) -0.07 0.003

(2.07) (0.13)

Dummy (Guinea-Bissau) 29.35

(14.18)

Adjusted R-Squared 0.75 0.86

t-statistics are in parentheses


An increase in aid lead to increase in debt.The variable is highly significant. 1% increase in aid lead to 0.40%

increase in debt, which seems to be economically significant.The coefficient decreases when dummy for Guinea-Bissau is

included.Increase in government consumption leads to an increase in

debt though coefficient decrease when the dummy variable is included.

Trade’s impact on debt without dummy variable is negative and marginally statistically significant and with dummy variable is positive but insignificant.

Democracy and foreign assistance in West Africa: A search for the correlation between aid

and liberty(Preliminary Findings)

Thank you.Comments and suggestions welcome toCameron Weber, corresponding [email protected] [email protected]

Documents

Democracy and foreign assistance in West Africa: A search for the correlation between aid and liberty (Preliminary Findings) Cameron Weber Omer Siddique