This paper explores the determinants of exit from high aid-dependence using an unbalanced panel dataset of over 75 countries for the period 1965 – 2015. The paper extends the current literature by: i) exploiting data on both short- and long-term transitions from high aid dependence ii) varying the criteria for “high” and “low” aid dependency; taking into account the inherent skewness of the aid dependency distribution iii) exploiting new measures of recipient country “proximity” to donor countries and iv) accounting for the role of humanitarian and monetary costs of emergencies and disasters as a possible determinant of aid dependence; exploring the “blurred lines” between ODA and humanitarian aid. The study finds that both short- and long run “exiters” from high aid dependence, however defined, exhibit markedly higher savings and private investment rates than “remainers”. Exiters also tend to be less indebted, relatively more productive in manufacturing, more democratic in their political institutions and more closely aligned to Western governments. Policies to increase savings rates, domestic productivity and to improve democratic institutions can contribute to escape from high aid-dependence. On the other hand, the short run analysis emphasizes the need for greater fiscal prudence and optimal management of the debt stock and resource rents as an important means through which recipient countries may reduce aid dependence. Yet another important finding from this study is that the intensity of ODA flows is not robustly driven by either the direct humanitarian or monetary costs of emergencies and disasters.

Back