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Abstract

This articleempirically examines the effects of foreign aid on economic freedom while consideringthe mediating role of political institutions. Wecontribute to the literature in two ways.First, weprovide an empirical analysisofhow different types of foreign aid affectthe economic freedom of the receiving country. Second, we provide evidence regarding how political institutions mediatethe foreign aid/economic freedom relationship. We useIV and GMMtechniquesto test a model using data from 40developing countries covering the time period 1985 to 2016. Our analysis yieldsthree main findings. First, democratic and politically stable countriesenjoy more economic freedom.Second, foreign aid’s net effect is to reduce economic freedom, whether weconsider official development assistance (ODA) ornet official assistance (NOA).Finally, economic freedomincreaseswithboth types of foreign aid if the receiving country’s political institutionsare moredemocraticand/ordurable.