Aid Modalities Matter: The Impact of Different World Bank and IMF Programs on Democratization in Developing Countries

Many argue that autocratic regimes allocate revenues from foreign aid with the aim of stabilizing their rule rather than serving economic and social development. However, donors often condition foreign aid on reforms in recipient states. We argue that when those conditions for reform focus on participative processes and government accountability, they positively affect democratization. We evaluate our claim based on different types of World Bank and IMF lending programs for a panel of 100 low- and middle-income countries over the years 1980Ð2011. Our results suggest that aid positively affects democratization when it strengthens domestic accountability mechanisms and thereby reduces its fungibility for recipients. The World Bank and the IMFÕs poverty reduction strategy programs provide a notable case of this effect.

Funding: Financial support by a special research grant of the University of Zurich (“Forschungskredit”) and the Swiss National Science Foundation is gratefully acknowledged.