Foreign aid: An instrument for fighting communism?

In this paper, we test the argument that the sizeable reduction in aggregate aid levels in the 1990s was due to the end of the Cold War. We test two different models using a dynamic econometric specification on a panel of 17 donor countries, spanning the years 1970-97. We find aid to be positively related to military expenditures in the former Eastern Bloc during the Cold War, but not in the 1990s, suggesting that the reductions in aid disbursements are driven by the disappearance of an important motive for aid. We also study the effect on aid allocation, but here we do not find any robust effects of the end of the Cold War.JEL Classification: F35 H5, H56,