"Foreign aid and political instability A theoretical analysis of the effect of a dictator’s preference on the relationship between foreign aid and political instability in autocracies"
Political instability may be an explanation for the inconclusiveness of the aid effectiveness debate. Therefore, this thesis looks into the relationship between foreign aid and political instability by investigating the effect of a dictator’s preference for consumption and power on this relationship. For this reason, an analytical approach is employed. Building on two theoretical models that link foreign aid and political instability, this thesis devises a new two-period model as a contribution. In addition, this model is used to provide theoretical evidence for the regime-stabilizing characteristics of foreign aid as it enables the dictator to raise repression and investment. While the regime-stabilizing effect of foreign aid and through increased repression and investment is unconditional in lower-income countries, the model reveals that the effect depends on the efficiency of repression and investment in stabilizing the regime in middle- to higher-income countries. Hence, there is an indication that there may be two equilibria to the problem at hand.
Faculteit der Managementwetenschappen