Dollars for Democracy Evaluating the Effectiveness of Democratic- Governance Aid as a US Foreign Policy Strategy

Transcription

1 Dollars for Democracy Evaluating the Effectiveness of Democratic- Governance Aid as a US Foreign Policy Strategy Satchel Kaplan-Allen Penultimate Comps Draft Abstract: Having adopted democracy promotion as a foreign policy strategy, the US Government and USAID in particular budget hundreds of millions of dollars per year for democracy promotion efforts in Sub-Saharan Africa. I argue that Democracy and Governance aid, out of all types of Official Development Assistance, is the most effective at causing democratization because it targets political institutions, strengthens civil society, and trains domestic agents that are empowered to produce democratic change. A multivariate regression analysis confirms my hypothesis that DG aid is a statistically significant determinant of democracy while other types of ODA, such as military, multilateral, and humanitarian aid, are not statistically significant. March 11, 213 Department of Political Science Carleton College Northfield, Minnesota

2 As the world s most prominent democratic superpower, the United States government has made the promotion of democracy abroad a central foreign policy strategy. While most Americans are familiar with our aid to high-profile recipient governments like Israel and Egypt, a large portion of our democratization-specific aid finds its way to Sub-Saharan Africa (SSA), where democracy has been the most tenuous and democratic institutions the most underdeveloped. After decades of rule by corrupt, authoritarian Big Men, the economic and social conditions in many SSA countries have become so desperate that leaders now appear genuinely interested in trying new approaches (Goldsmith, 21: 127). To definitively tear away the constraints of authoritarianism, these countries must combat the failure of domestic institutions as well as the global governance system 1 to bring democracy and economic development to the masses (Abegaz, 25: 436). To address such needs, the United States Agency for International Development (USAID) designates a significant portion of its annual operating budget to Democracy and Governance (DG) aid. While the term nation-building has been sullied in recent years as a result of its application to messy foreign wars fought by the United States against insurgency groups, the underlying principle of promoting democracy worldwide stands as a key diplomatic goal. How, then, has the adoption of nation-building manifested itself as a foreign policy priority? The answer is simple. In absolute terms, the US is the world s largest donor of foreign aid for the purpose of strengthening democratic governance. 1 Such domestic institutions include free and fair elections, judicious courts, and a strengthened civil society; aspects of the global governance system include foreign donor governments and international financial or humanitarian organizations. 1

3 President Barack Obama s 213 budget request for foreign aid weighed in at $56 billion, or approximately one percent of the total federal budget. Spending on foreign aid, termed Official Development Assistance or ODA, has increased in every year of the last four presidencies (US Census Bureau, 212). While the figures on aid spending do not include money designated for foreign assistance 2 nor donations from private sources to recipient governments, a substantial portion is directly allocated towards democratization efforts in the developing world. The practices of our national aid agencies have changed over decades of war, regime shifts, societal change, and economic development, but the mission remains the same to ensure the survival of democratic governments. In this paper, I argue that while scholarly studies have failed to conclusively determine consistently a quantitative relationship between foreign aid and democracy, there exists a positive relationship between USAID DG aid and democratization in Sub- Saharan Africa between the years Using a dataset of USAID and other aid agencies budget expenditures, I prove that while international aid from all foreign governments, international financial institutional aid, and USAID non-dg aid are less effective at promoting and sustaining democratic governments, DG aid succeeds by targeting the national institutions and issues crucial to democratic survival. As Finkel writes: Democracy programs seek to empower key domestic agents in order to foster democratic changes in the recipient country, in contrast with other forms of development assistance that attempt to promote the transformation of social, 2 Foreign military assistance goes towards training foreign armies and equipping them with weapons and technology. The US will spend an estimated $14 billion on foreign military assistance in

4 economic, or other structural forces in ways that eventually may support the establishment and survival of democracy (27: 45-6). Many studies have attempted to prove linkages between aid and democratization or economic growth and democratization, but few have provided conclusive evidence and studies applying the same methodology often contradict each other. I prove that DG aid is the most effective channel for promoting democracy because it targets domestic agents (national and regional) and equips them to produce democratic change. It is important to understand the true nature of the relationship between DG aid and democratization so as to evaluate whether the US is pursuing an effective strategy for its long-term foreign policy goals. To the average American, the concept of foreign aid to Africa is often misunderstood as solely humanitarian assistance through various charities, NGOs, and perhaps US government or United Nations famine relief programs. Typically, one quarter to thirty percent of all development aid is earmarked for SSA, with a third of that qualifying as DG aid (Abegaz, 25: 434). Depending on the estimate, aid makes up between eight and 12.5 percent of the average SSA country s GDP; Djankov approximates that in several countries, foreign aid makes up nearly half of the government s total budget (Goldsmith, 21; Irandoust, 25: 617; Djankov, 25: 2). In many countries, DG aid makes up five percent of GDP and 15-2 percent of the government s annual expenditures. As Figures 1 and 2 show that while 13 countries have never received DG aid, 3 levels of USAID total aid and DG-specific aid have increased 3 These countries typically have achieved high enough levels of democracy (an average of 7.52 on the Polity IV index) that they are not targeted for DG aid and subsequently receive less total USAID aid. 3

5 dramatically over the course of the decade, with the average SSA country receiving $13.79 million dollars in annual USAID total aid and $3.92 million in DG aid. Needless to say, USAID s ODA initiatives are no trivial matter. While DG aid provides critical budgetary and institutional support to many SSA governments, the misappropriation of aid remains an obstacle to achieving democratic progress. In recent years, much of Africa has been termed aid dependent, meaning few of its states can carry on routine functions or deliver basic public services without external funding and expertise (Goldsmith, 21: 123). The foreign policy implications of such high dependence are massive; USAID s DG and non-dg aid becomes an essential contribution for countries not to thrive, but merely to survive. It is not sufficient to examine only the recipient side of DG aid; we must consider the donor s reasons as well. Berhanu Nega, once the mayor of Ethiopia s capital city Addis Ababa, writes that in almost all cases where [the US State Department] had to choose between financial and humanitarian support to dictatorships or taking a clean stand on the issue of democratization by withholding financial support, they have chosen the former (Nega, 211: 315). What justification is there for the US to give DG aid blindly without concern for its distribution? The lack of deeply rooted democratic institutions proves a vicious cycle in SSA countries DG aid intended to strengthen democracy is rendered ineffective by the failure of the government to efficiently and transparently distribute aid. Is USAID throwing taxpayers money away by pumping money into an underdeveloped institutional system? By being more selective in its allocation of DG aid, USAID can maximize the intended outcome of democratizations. 4

6 For instance, government elites in SSA are less likely to be flexible with national policy changes if they have a less pressing need for aid money that is to say that DG aid given to well-entrenched leaders who do not have problems satisfying their small winning coalition is likely to result in few concrete changes in the democratic quality of governance (Licht, 21). And with greater influence over leaders with a large winning coalition, USAID has the power to trade aid money for concessions such as regime change, fair elections, economic reform, and more. The official mission of USAID s Democracy and Governance initiative, as posted on the agency s website, is to support more legitimate, inclusive and effective governments that are responsive to the needs of their people and support the U.S. government effort to help countries transition to democracy and consolidate democratic institutions (USAID, 212). USAID s DG funding can be separated into four distinct objectives that catalyze or support the democratization process: establishing free and fair elections, securing a just rule of law, promoting good governance, and strengthening civil society. To establish free and fair elections, DG aid funds programs and staff to promote impartial electoral frameworks, credible electoral administrations, effective oversight of electoral processes, and effective transfer of political power (USAID, 212). While many recipient countries of DG aid already have elections in place, the elections are typically only symbolic of democracy and do not allow for the selection of leaders based upon a popular vote. Furthermore, constitutional restriction of alternative political parties and intimidation of challenger candidates and voters alike further reduces the prospects of 5

7 democratic rule. USAID provides technical assistance and expertise to reduce voter intimidation and prevent tampering with ballots and election results. USAID supports the efforts of watchdog organizations to ensure the continuity and permanency of rule of law and good governance. Rule of law consists of promoting order and security, legitimacy of laws, judicial checks and balances, access to justice, and effective application of the law (USAID, 212). The primary goal of DG aid with regards to rule of law is to ensure that constitutional law is observed, judges are properly trained, and that the legal system from military courts to police officers is able to effectively and consistently apply the law to all institutions and citizens. USAID agents facilitate cooperation between legal entities and civil society to secure access to justice for all citizens. Hand in hand with rule of law is good governance, the promotion of transparency, accountability, and participation in government institutions and public policy reform processes (USAID, 212). By promoting these three goals, USAID informs citizens of their democratic rights and encourages them to participate in elections, forums on policy reform, and other political processes. The final DG objective, the strengthening of civil society, is the least well understood aspect of USAID s mission because it is broadly defined as all nongovernmental organizations operating to promote democracy and human rights. 4 Yet an independently strong civil society is necessary for the creation and preservation of a democratic government because without one, citizens are severely limited in their ability 4 The designation of civil society as a separate category of DG aid is almost exclusively an American one: the US government is responsible for 85 percent of all international ODA for civil society, most of which comes from USAID s operating budget (Hearn, 1999: 6). 6

8 to advocate for their own rights and interests. As Ayers writes: The absence of civil society is fatal for the state itself because it has not been subjected to the necessary discipline provided by the forces of civil society (26: 329). Civil society is central to USAID s DG mission because it has the ability to transform non-democratic countries through informing public opinion, mobilizing constituencies for reform, and engaging government and political parties in policy debate (USAID, 212). Specifically, the agency achieves its goals through technical assistance and capacity building for civic education, labor unions, and media organizations; training and scholarships, conducting and supporting civil society assessments, small-enterprise loans, budget support, and credit guarantees. The process of evaluating USAID s successes is just as important as the process of identifying objectives for its DG aid programs, because without knowledge of DG aid s effectiveness, it is impossible to determine whether or not funding should continue. Goldsmith identifies three indicators that prove an increase of democratization in Africa: more liberal rules of political engagement, a growing number of competitive elections, and the rise of democracy scores in indices of political freedom (21: 418). But out of all cases of democratic transition, for how many can USAID claim responsibility? In fact, USAID reports that for all democratic transitions between 198 and 2, 63 percent of states were recipients of DG aid packages (Scott, 211: 49). That figure, however, is still not conclusive evidence that USAID was the sole or partial catalyst of democratization; the evaluation must consist of how much the observed result differs from what would have occurred in the absence of the specific DG program. When 7

9 improvements in democratic attributes are observed, the agency must determine to what extent it was their DG funding that caused the change, as opposed to the efforts of another donor. On the micro level, if USAID successfully trains 5 judges in consistent and just administration of the law, how can program evaluators be sure that an improvement in rule of law is the result of those 5 judges? On the macro level, how can USAID determine whether its own aid donations caused democratization or merely strengthened the quality of the already-present democracy? It is crucial that USAID consider this question of endogeneity in the aid/democracy timeline because it means the difference between taking credit for the democratization process and merely expending resources on an already-transitioning country. My quantitative regression analysis disproves the endogeneity of democracy in USAID s target countries, thereby affirming the contributions of DG aid to the process of democratization in SSA. Foreign Aid and Democracy Since the emergence of democracy-focused aid as a strategic diplomatic tool at the onset of the Cold War, hundreds if not thousands of scholarly articles have attempted to explain the relationship between aid and democratization some quantitatively, some by means of case study analysis, some with a hybrid approach. Yet for every published study that proves a positive correlation between ODA and the presence of democratic governance, 5 an opposing study claims that no relationship exists at all; in some cases, 5 Democratization is typically operationalized using the widely accepted Polity IV index. Some studies have also applied Freedom House s Freedom in the World rankings, 8

10 scholars even have found a significant negative relationship. By reviewing the key arguments and findings of both statistics-based and case study analyses, we gain a greater understanding of the assumptions of the model for aid as a catalyst for democratization. Over a two-year period, Goldsmith (21) reports a wide discrepancy in the findings of twenty quantitative regression analyses: three empirical studies showed a positive relationship between aid and democracy, five showed a conditional relationship based upon economic growth, ten failed to find a relationship and two studies proved a negative correlation. With inconclusive results from quantitative models, I turn to theoretical evidence to further explore the hypothesis. In arguing against the democratization theory, Djankov claims foreign aid damages the political institutions of the country because recipient governments leaders have few inducements to maintain democratic rule (25: 3). However, more aid money translates into more problems for leaders as well as for the populace. In some cases, aid can encourage violent conflict and coup attempts because it incentivizes control over the government (Knack, 23: 2). Kalyvitis lends a new perspective that considers the culpability of elites: Aid is likely to impede democratization by hampering governmental accountability and undermining citizens control over governing parties through payment of taxes (212: 133). When narrowing the results down to recent studies that operationalized ODA as DG aid, Finkel (27) found a minor positive relationship between DG aid and democratizations while Djankov (25) noted the presence of a more substantial negative typically inverting the index so that higher scores denote a greater level of democratization. 9

11 correlation. Scholars explain aid as an enabling factor for democratic growth. DG aid is shown to have a bolstering effect on governance (stability, decentralization, and transparency) as well as the judicial framework (independence, compliance, and human rights protections), two key elements in democratic transitions (Heckelman, 21: 576). Bjornskov examines the impact of DG aid under the prospect of democratic rule. When DG aid is granted directly to political elites, democratization would theoretically benefit the poor because of an increase in the size of the government s winning coalition (Bjornskov, 21: 116). A larger winning coalition combined with increased foreign aid undeniably benefits the relative poor at the expense of the rich in this case, political elites and their cronies. Case Selection and Methodology In my quantitative regression analysis, I prove that USAID DG aid, out of all forms of international ODA, is the most effective approach to catalyze and sustain democratization. As Scott writes, one of the most salient democracy promotion strategies has been USAID initiatives to provide foreign aid of a variety of kinds designed to foster democratic progress and consolidation (211: 48). The selection of Sub-Saharan Africa as the region of focus for this study is based upon the fact that the current political and institutional climate of much of SSA is well suited for DG aid programs. Unlike other underdeveloped, nondemocratic regions or countries, SSA isn t hindered by the same cultural-historical characteristics that make 1

12 externally driven democratization difficult elsewhere. 6 While ODA to other regions, especially the Middle East, is commonly accepted as politically-motivated and given in the name of our national security interests, DG aid in SSA is given, for the most part, in a genuine attempt to strengthen democratic political institutions primarily and support humanitarian progress and economic growth secondarily. The longitudinal scope of my analysis was determined in part due to the availability of data and in part because the timeframe represents the start of a key period of US foreign policy strategy following the end of the Cold War, even if SSA itself was not a major battleground between the US and the USSR. In this study, I operationalize aid intended for democratization as USAID Democracy & Governance (DG) ODA, as reported by USAID in a raw data format and compiled by Finkel et al. into a dataset spanning USAID DG aid is directed towards specific subsectors of sociopolitical institutions, such as elections, civil society, free media as well as the strengthening of parliaments, judiciaries, and political parties, and fostering the growth of organizations such as labor unions and women s and human rights groups (Finkel, 27: 436; Knack, 23: 3). While these subsectors encompass humanitarian issues, the intent of the aid is to catalyze democratic change by strengthening its necessary institutional preconditions not to merely cover up the wounds of authoritarianism and underdevelopment with emergency relief funds. The 6 Scholars have pointed out the existence of cultural, religious, historical, ethnic, or otherwise enigmatic differences in many Middle Eastern and South East Asian countries that reduce the effectiveness of DG aid allocated as part of a US foreign policy strategy. Less literature exists specifically on DG aid and democratization in Latin American nations, but the consensus is that foreign direct investment and import substitution industrialization has contributed to democratic change more in that region than in SSA. 11

13 other explanatory variables that I include are other forms of ODA directed to SSA countries: USAID non-dg aid, US foreign military assistance, total international aid including non-us sources, and aid from international financial or development institutions such as the IMF and the World Bank. All data has been sourced from the relevant donating party, or in some cases, from an independent aid data aggregate. All of these donors of ODA provide their recipient governments with varying specifications for the funds application and usage, but the uniting factor is that none (with the exception of some other foreign governments) explicitly distinguish between DG aid and non-dg aid. Therefore, the unique element of my quantitative analysis is that I show the success of DG aid versus non-dg or unspecified aid in promoting democracy. The dependent variable of my study is level of democracy as measured by the Polity IV index. The Polity data series, widely accepted as the standard in democracy indices amongst scholars, bases its evaluations on criteria such as competitiveness of and electorate participation in elections, freedom of speech, transparency and corruption levels, and independence of the judiciary and military from political parties and elites. A Polity score of -1 represents the highest level of autocratic governance while 1 represents democracy in its strongest form. Quantitative Regression Analysis Figure 3 displays the patterns of democratization in SSA between as defined by the Polity IV index. As expected, there are many different trends across all 48 country cases. However, Gambia and Zimbabwe are the only countries in which the democracy score in 24 was not higher than the democracy score in 199. With that 12

14 evidence, it is fair to say that on the whole, the quality of democracy in SSA has improved over time. The mean democracy score in 199 was on a scale from -1 to 1, with -1 representing the most authoritarian and 1 representing the most democratic. In 1999, the mean democracy score crossed the zero threshold for the first time and entered the democratic side of the index. After peaking in 22 at a mean score of 1.318, the average level of democracy in 24 was While the change certainly reflects progress in the region, is not considered an indication of democratic governance by any means; most nongovernmental organizations don t consider a country to be a democracy unless the Polity score is above 5. In SSA, countries that are classified as democracies (between 5 and 1 on the Polity index) report an average Polity score of 7.395, while all other nondemocratic countries (between -1 and 5 on the Polity index) average Democracy has improved, but the region has a long way to go before it can be considered a hotbed of democratic governance and stability. If one trend can be observed in the data, it is that democracy in SSA is remarkably fragile, transient, and in several cases, historically unsustainable. Burundi, the Central African Republic, Comoros, the Democratic Republic of Congo, Gambia, Guinea-Bissau, and Niger have all benefitted from rapid increases in democracy only to suffer from equally sharp declines within a few years. Other countries, like Angola, Cote d Ivoire, Djibouti, Mozambique, Nigeria, Sierra Leone, and Zambia have all seen large gains in democracy that plateau after a few years before the country can reach the democratic threshold Polity score of 5. This statistical analysis proves that the instability of 13

15 democratic governance is improved by aid programs that empower domestic agents and target political institutions. Figures 1 and 2 show the trends of USAID general and DG-specific aid, respectively, given to SSA countries over time. Note that there are approximately 13 countries in the study that have never received USAID aid whatsoever and 18 countries that have not received DG specific aid. However, to eliminate these countries for the regression analysis would be to imply that countries do not attain democratic progress without the help of USAID ODA; therefore these countries will remain in the study. A small group in particular consume the majority of DG aid the Democratic Republic of Congo, Ethiopia, Kenya, Liberia, Nigeria, Sierra Leone, Sudan and Zimbabwe all receive significant amounts while the Republic of South Africa has received, over time, far and away the most money for DG programs. A regression between total USAID and DG reveals a statistically significant positive linear relationship with a correlation coefficient of 2.543, implying that an increase of one dollar of DG aid will, on average, result in an increase of 2.54 dollars of general aid; and a strong R-squared of.482, meaning that 48.2% of the variance in one variable is explained by the other. The correlation between the two variables USAID and DG renders the variable for non-dg USAID aid (nondg) redundant because it is simply the other two variables subtracted from one another. Table 1 shows summary statistics from the independent variables in the study for the overall time span, for 199, and for 24 (the first and last years of the study). Out of the average annual USAID allocation of million USD per country, 1.49 million of those dollars are directed towards DG programs. In 199, when the average overall 14

16 allocation was $ million, the average DG allocation was only $18, a finding that is consistent with the theory has democracy promotion has become a more central US foreign policy strategy. Furthermore, DG aid has gone from making up less than two percent of USAID s total operating budget in 199 to over 17 percent in 24. In 199, the majority of DG aid was directed towards strengthening civil society in SSA, a fact that is true in 24 as well. However, in 199 USAID granted zero DG aid towards its Elections and Political Processes subfield, whereas in 24 it was the third largest segment of the DG budget. This observed increase in elections spending is consistent with USAID s target goal of improving transparency in the electoral process and facilitating a smooth and peaceful transition of power. Non-USAID aid spending, not including US military assistance (which has always averaged about.18 percent per SSA country out of total military assistance), has increased over time as well. Bilateral (from one developed country to one SSA country) and multilateral (from an international aid organization or financial institution) aid has increased from $25 million and $115 million, respectively, per country in 199 to $282 million and $214 million in 24. The more significant finding is that DG aid 7 from non- US donors increased from $12.9 million per country in 199 to $91.1 million per country in 24. Evidently, DG aid as a foreign policy priority has been practiced not only by the US, but also by foreign governments and international institutions that see the value of promoting democracy worldwide. 7 While DG (Democracy & Governance) aid is a term applied by USAID to its democratization programs, the term can be similarly applied to funds allocated by non- US donors for purposes such as election and political process monitoring, strengthening of the judiciary, and support for civil service, good governance practices, better rule of law, and free media. 15

17 In the argument section of my paper, I discuss the implications of endogenous democracy in my study the extent to which democratization would have occurred in the absence of USAID DG initiatives. In order to determine the extent to which the endogeneity problem exists in my dataset of ODA variables, I created three additional lag variables of the original DG statistic. The new variables lagged DG aid by one, two, and five years respectively. The purpose of conducting this examination is to prove that democracy is not endogenous to all cases in which USAID has funded DG programs; that is, that DG aid predates democratic change by a statistically significant margin; or conversely, that DG aid was not specifically targeted or increased towards countries that had already undergone democratization. The finding that DG aid, when lagged one, two, and five years still shows positive, statistically significant correlation to democracy is important because it affirms that USAID successfully distributes DG funding to encourage countries under authoritarian to transition to democracy. The bivariate regressions results for DG(lag-1), DG(lag-2), and DG(lag-5) are contained in Tables 2, 3, and 4 respectively. Lagged one year behind democracy, DG aid is statistically significant at the.1 level with a positive correlation to democracy of.35. A robust z-score of 5.88 and a Wald chi2 score of confirm the predictive power of the model, while the overall R-squared score of.78 indicates that 7.8% of the variation in democracy is explained by the lagged DG aid variable. With DG aid lagged two years, the model is equally predictive; DG aid lagged an additional year is still statistically significant at the.1 level with a positive correlation of.254. A decrease in the positivity of the correlation is to be expected as an consequence of lagging aid; the wider the gap 16

18 between the year in which aid is given and the year in which democracy is observed, the less strong the relationship will be as the aid programs have less time to take effect. However, the model still shows a strong z-score of 4.84 and a Wald chi2 score of 23.42, with an R-squared of.87. Finally, when lagged five years, DG aid begins to appear less statistically significant when correlated with democracy. DG(lag-5) is no longer significant at the.1 level, showing a value of.25. The z-score decreases to 2.24 and the Wald chi2 is particularly weak at 5.3. Interestingly enough, the predictive power of the model (.73) has remained in the same range as the other two models, but the strength of the correlation has decreased to.118. This change is not surprising, given that a lagged difference of five years between aid and democracy is long enough to reduce the observed effect of the former on the latter. The findings of these three bivariate models, while not conclusive, are substantial evidence against the presence of endogeneity in USAID s DG programs. If the correlation of DG aid and observed democracy remains statistically significant when aid is lagged one, two, and five years, the claim can be made that USAID verifiably has a hand in supporting the preconditions for democratic change, as opposed to funding DG programs in countries already undergoing democratization. I conducted a time-series cross-sectional panel analysis (TSCS) in order to test my theoretical model on the multivariate level. The random effects (re) or fixed effects (fe) model enable me to determine how the groupings of country and time (measured by year) affect the error variance of the regression. A diagnostic test of the panel data shows a panel that requires panel-corrected standard error (pcse) adjustments. Following the 17

19 regression of my independent variables of aid donation against the dependent variable of democracy, I conducted a panel-corrected standard error procedure. Model A: Democratization (Polity IV) i, t ß = α + x1(dg aid) i, t ß + x2(usaid general aid) i, t ß + x3(usaid non-dg humanitarian aid) i, t ß + x 4 (non-us bilateral aid) i, t ß + x 5 (non-us multilateral aid) i, t ß + x 6 (non-us DG aid) i, t ß + x 7 (US foreign policy priority) i, t ß + x 8 (US military assistance) i, t ß + ε i, t ß Model A regresses democracy onto all of the primary independent variables using a random effects model. A Woolridge test for autocorrelation in the panel data is statistically significant and reveals AR1 first order autocorrelation, meaning that there is some lag within the independent variables in explaining the dependent variable. A Hausman specification test evaluating the random effects and fixed effects panel models is not statistically significant, meaning that the random effects model is appropriate for this study. In order to solve for the AR1 first order autocorrelation, I apply panel corrected standard error test to the above model. The results are shown in Table 5. In Model A there are three statistically significant independent variables as proven by high z-scores: DG aid (at the.1 level), USAID aid (.1 level), and non-us DG aid (.1 level). The remaining variables are all statistically insignificant in the model. The three statistically significant variables all display slight positive correlations with democracy, implying that an increase in USAID general aid, USAID DG aid, or non-us DG aid will cause an increase in democracy level. The Wald chi2 score for the model is 59.32, which is high enough to give us confidence in the predictive power of the model. The R-squared value of.52 indicates that according to the model, 5.2% of the variation in democracy is explained by the significant independent variables. While these results are consistent with my theoretical argument about the effect of DG aid on 18

20 democracy, the predictive power of the model is hindered by the number of insignificant variables. Model B: Democratization (Polity IV) i, t ß = α + x1(dg aid) i, t ß + x2(usaid general aid) i, t ß + x3(non-us DG aid) i, t ß + ε i, t ß The results for Model B are contained in Table 6 [insert table here]. In Model B, the two DG-related variables (DG aid and non-us DG aid) are shown as being statistically significant at the.1 level. However, USAID general aid has gone from being statistically significant at the.1 level to being insignificant in this new model. The Wald chi2 score has increased to a very robust and the R-squared has gone up to.93, meaning that 9.3% of the variance in democracy is explained by the model. Postestimation diagnostic tests on Model B revealed that first-order autocorrelation was not a concern. In order to test the effectiveness of foreign ODA amongst different types of cases in SSA, I reran the regression and controlled for whether a country was considered democracy or not at the time that aid was given. Note that countries scoring a five or higher on the Polity IV index are considered to be democratic. For democratic countries, all three independent variables are less significant than in the general model. In fact, non-us DG aid has become statistically insignificant while DG aid now displays a negative linear relationship with democracy, contrary to the vast majority of existing literature. The model is slightly less predictive than the previous one, reporting an R- squared of only.83 and a Wald chi2 score of 7.4. However, USAID general aid is statistically significant at the.5 level and positively correlated with democracy, suggesting that once countries have reached a certain stage of democratic governance, USAID general aid programs are helpful in reinforcing democratic foundations but that 19

21 DG-specific aid has, if anything, a negative effect on democracy. The most likely explanation for this is that once a country reaches a relatively strong country of democracy, USAID transitions its support from DG-specific aid to more general programs in areas such as education, infrastructure, and economic development that require the presence of democracy to be effective. The same model was run, but this time adjusted to account for all non-democratic countries. The results are virtually the opposite of the previous model that regressed for democratic countries. In this model, the R-squared is much higher at.217 and the Wald chi2 score of affirms that the model has strong predictive power. USAID general aid is now negatively correlated with democracy and statistically insignificant, while DG aid and non-us DG aid are both positively correlation and significant at the.1 level. This model further confirms the hypothesis that DG aid is an essential part of democratization in underdeveloped, authoritarian countries in SSA. Conclusion The finding that Democracy and Governance aid programs are successful in promoting democratic change in Sub-Saharan Africa is only significant if it influences the United States government s foreign policy strategy towards democracy building. While the United States has long declared itself a peace-building and benevolent nation, military and humanitarian aid programs have had little statistical success in creating the conditions for democratization. So how does DG aid become a more substantial part of our annual aid giving? USAID s DG aid programs have had a proven impact on the capacity of domestic agents, regional civil societies, and national political institutions to empower citizens to 2

22 create democratic change. While critics argue that Sub-Saharan Africa should not be a target region for democracy building, given its long history of colonial rule, weak political and physical infrastructure, and underestablished geopolitical potential, my study proves that DG aid, despite making up a paltry fraction of total ODA, can be targeted to region with successful results. It may seem like an obvious discovery that aid designated for promoting democracy does, in fact, promote democracy. But confirming that DG aid has a positive causal relationship with democracy in Sub-Saharan Africa, while other types of aid do not, has the ability to transform how national governments and political scientists view aid as a development tool. From a foreign policy standpoint, giving Official Development Assistance for democratization programs will no longer be the guessing game it once was. Furthermore, USAID and other aid agencies assess the successes of their own programs instead of relying upon independent auditors, which results in biased evaluations and ineffective program reforms. By quantifying the impact of aid money, aid agencies and national governments can become less wasteful and dedicate additional resources to regions and sectors in need. There are many ways in which I hope to expand this study in the future. Besides examining the subcategories of DG in greater depth to determine how USAID can maximize its results in SSA, the framework could be applied to other forms of aid. For instance, does military aid actually pacify conflict and produce a lasting peace? Does humanitarian aid effectively reduce poverty and disease and promote education and human rights to increase quality of life? And does economic development aid succeed in producing market stability and capitalistic growth in recipient countries? The framework 21

23 could also be applied to other regions in which USAID or other aid agencies operate; while others regions, especially the Middle East and North Africa, hold greater geopolitical significance and therefore more ulterior motives for giving, I believe that my model for examining the impact of aid is still applicable. Finally, it would be particularly interesting to view aid data over a wider scope of time to determine whether or not foreign wars, the global economic crisis, and the rise of new political and economic superpowers have changed how the United States sets about achieving its goals of democracy promotion. 22

24 Works Cited Abegaz, Berhanu. 25. Multilateral development aid for Africa. Economic Systems 29: Ayers, Alison J. 26. Demystifying Democratization: The Global Constitution of (Neo)Liberal Polities in Africa. Third World Quarterly 27.2: Bjornskov, Christian. 21. Do elites benefit from democracy and foreign aid in developing countries? Journal of Development Economics 92: Djankov, Simeon, Jose G. Montalvo, and Marta Reynal-Querol. 25. The Curse of Aid. Report published by The World Bank Group and CEPR (April): Finkel, Steven E., Aníbal S. Pérez Liñan, and Mitchell A. Seligson. 27. The Effects of U.S. Foreign Assistance on Democracy Building, World Politics 59.3 (April): Goldsmith, Arthur A. 21. Donors, dictators, and democrats in Africa. Journal of Modern African Studies 39.3: Goldsmith, Arthur A. 21. Foreign Aid and Statehood in Africa. International Organization 55.1 (Winter): Hearn, Julie Foreign Aid, Democratization, and Civil Society in Africa: A Study of South African, Ghana, and Uganda. Discussion paper published by the Institute of Development Studies: Heckelman, Jac C. 21. Aid and Democratization in the Transition Economies. Kyklos 63.4 (November): Irandoust, Manuchehr and Johan Ericsson. 25. Foreign aid, domestic savings, and growth in LDCs: An application of likelihood-based panel cointegration. Economic Modeling 22: Kalyvitis, Sarantis and Irene Vlachaki When does more aid imply less democracy? An empirical examination. European Journal of Political Economy 28: Knack, Stephen. 23. Does Foreign Aid Promote Democracy? Report published by The World Bank Group (July): Knack, Stephen and Aminur Rahman. 23. Donor Fragmentations and Bureaucratic Quality in Aid Recipients. Report published by The World Bank Group: 1-45). 23

25 Licht, Amanda A. 21. Coming into Money: The Impact of Foreign Aid on Leader Survival. Journal of Conflict Resolution 54.1: Nega, Berhanu Short Changing the Value of Democracy for Economic Development in Africa. Forum of Social Economics 4: Scott, James M. and Carie A. Steele Sponsoring Democracy: The United States and Democracy Aid to the Developing World, International Studies Quarterly 55: United States Agency for International Development Democracy, Human Rights and Governance. URL: United States Census Bureau Foreign Commerce and Aid: Foreign Aid. URL: 24

26 Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Democratic Republic of / Za Congo, Republic of the Cote d'ivoire Djibouti Equatorial Guinea Eritrea (Eritrea split) Ethiopia (incl. Eritrea) Gabon Gambia Ghana Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zaire Zambia Zimbabwe Graphs by cname Appendix: Figures and Tables Angola Benin Botswana Burkina Faso Chad Comoros Congo, Democratic Republic of / Congo, Za Republic of the Ethiopia Ethiopia (Eritrea split) Ethiopia (incl. Eritrea) Gabon Kenya Lesotho Liberia Madagascar Mozambique Namibia Niger Nigeria Sierra Leone Somalia South Africa Sudan Zaire Zambia Zimbabwe Burundi Cote d'ivoire Gambia Malawi Rwanda Swaziland Cameroon Djibouti Ghana Mali Sao Tome and Principe Tanzania Cape Verde Equatorial Guinea Guinea Mauritania Senegal Togo Central African Republic Eritrea Guinea-Bissau Mauritius Seychelles Uganda USAID year USAID Graphs by cname year Figure 1: USAID total aid to countries over time 25

27 Angola Benin Botswana Burkina Faso Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Democratic Republic of / Za Congo, Republic of the Cote d'ivoire Djibouti Equatorial Guinea Eritrea (Eritrea split) Ethiopia (incl. Eritrea) Gabon Gambia Ghana Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zaire Zambia Zimbabwe Graphs by cname Chad Comoros Congo, Democratic Republic of / Congo, Za Republic of the Ethiopia Ethiopia (Eritrea split) Ethiopia (incl. Eritrea) Gabon Kenya Lesotho Liberia Madagascar Mozambique Namibia Niger Nigeria Sierra Leone Somalia South Africa Sudan Zaire Zambia Zimbabwe Burundi Cote d'ivoire Gambia Malawi Rwanda Swaziland Cameroon Djibouti Ghana Mali Sao Tome and Principe Tanzania Cape Verde Equatorial Guinea Guinea Mauritania Senegal Togo Central African Republic Eritrea Guinea-Bissau Mauritius Seychelles Uganda DG year DG Graphs by cname year Figure 2: USAID DG aid to countries over time 26

28 Angola Angola Benin Botswana Burkina Faso Burundi Cameroon Central African Republic Chad Comoros Democratic Republic of / Za Congo, Republic of the Cote d'ivoire Djibouti Equatorial Guinea Eritrea (Eritrea split) Ethiopia (incl. Eritrea) Gabon Gambia Ghana Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Nigeria Rwanda Senegal Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zaire Zambia Zimbabwe Chad Eritrea Guinea Mali Rwanda Tanzania Benin Comoros Ethiopia Guinea-Bissau Mauritania Senegal Togo Botswana Burkina Faso Congo, Democratic Republic of / Za Congo, Republic of the Ethiopia (Eritrea split) Ethiopia (incl. Eritrea) Kenya Lesotho Mauritius Mozambique Sierra Leone Somalia Uganda Zaire year 199 Burundi Cote d'ivoire Gabon Liberia Namibia South Africa Zambia Cameroon Djibouti Gambia Madagascar Niger Sudan Zimbabwe Central African Republic Equatorial Guinea Ghana Malawi Nigeria Swaziland Graphs by cname POLITYIV year POLITYIV Graphs by cname Figure 3: Democratization in SSA over time 27

29 Table 1: Summary statistics Mean Standard Deviation Variable Name (Abbreviation) #Obs Overall Overall Total USAID allocation (USAID) USAID DG aid (DG) DG aid for Elections and Political Processes (DGelect) DG aid for Rule of Law (DGlaw) DG aid for Civil Society (DGcivil) DG aid for Governance (DGgov) USAID non-dg aid (nondg) USAID humanitarian assistance (nondgha) % DG of total USAID (DGusaid) Non-US bilateral (national) assistance (nonusbilat) Non-US multilateral (institutional) assistance (nonusmultilat) Non-US DG assistance (DGnonUS) Military assistance as a percentage of US military assistance budget (militassist) Table 2: Bivariate Regression between DG(lag-1) and Democracy R-sq =.78 Obs per group: min = 11 avg = 13.8 max = 14 Panels: correlated (unbalanced) Autocorrelation: low AR1 Wald chi2(1) = Prob > chi2 =.*** Polity IV Coef. Std. Err. z p> z DG aid (lag-1) *** 8 All aid allocation figures are in millions of US dollars, unless otherwise noted. 28

30 Table 3: Bivariate Regression between DG(lag-2) and Democracy R-sq =.87 Obs per group: min = 1 avg = 12.8 max = 13 Panels: correlated (unbalanced) Autocorrelation: low AR1 Wald chi2(1) = Prob > chi2 =.*** Polity IV Coef. Std. Err. z p> z DG aid (lag-2) *** Table 4: Bivariate Regression between DG(lag-5) and Democracy R-sq =.14 Obs per group: min = 7 avg = 9.8 max = 1 Panels: correlated (unbalanced) Autocorrelation: low AR1 Wald chi2(1) = 5.3 Prob > chi2 =.24** Polity IV Coef. Std. Err. z p> z DG aid (lag-5) ** 29

31 Table 5: Model A R-sq =.52 Panels: correlated (unbalanced) Autocorrelation: common AR(1) Obs per group: min = 12 avg = max = 15 Wald chi2(8) = Prob > chi2 =.*** 9 Polity IV Coef. Panel-Corrected z p> z Std. Err. DG aid *** USAID aid * Humanitarian aid Non-US bilateral aid Non-US multilateral aid Non-US DG aid *** Foreign policy priority Military assistance _cons *** significant at the.1 level **significant at the.5 level * significant at the.1 level 3

32 Table 6: Model B R-sq =.93 Panels: correlated (unbalanced) Autocorrelation: no autocorrelation Obs per group: Wald chi2(3) = Prob > chi2 =.*** Polity IV Coef. Panel-Corrected Std. z p> z Err. DG aid *** USAID aid Non-US DG *** aid _cons min = 12 avg = max = 15 31