Foreign aid and income inequality: a quasi-experimental evidence

This article investigates the causal effect of foreign aid on income distribution. We rely upon the fact that, starting from 1987, eligibility for aid from the International Development Association has been according partly to whether a country' per capita income is below a certain threshold, e...

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Bibliographic Details
Published in:Applied economics letters 2024-12, Vol.31 (21), p.2256-2260
Main Authors: Wang, Xiuhua, Wang, Yipeng, Lin, Pei-Chien, Huang, Ho-Chuan
Format: Article
Language:English
Subjects:
Discontinuity
Economic analysis
Foreign aid
fuzzy
Income distribution
Income inequality
Quasi-experimental methods
regression discontinuity design
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Summary:This article investigates the causal effect of foreign aid on income distribution. We rely upon the fact that, starting from 1987, eligibility for aid from the International Development Association has been according partly to whether a country' per capita income is below a certain threshold, enabling a regression discontinuity design. The empirical evidence demonstrates that for those countries receiving foreign aids, their income distribution is significantly improved. In addition, we show that foreign aid lowers income inequality possibly through boosting income shares held by the lower 80% at the expense of decreasing income share held by the highest 20%.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2023.2217557