Aid and institutions in transition economies

We investigate whether aid contributed to institutional development in transition economies. We find that aid flows have a positive effect on democratization, especially on constraints on the executive and political participation. At the same time, total aid has no effect on overall quality of governance, while US aid appears to have a negative impact on some dimensions of governance. Aid’s differential impact on democracy and governance is consistent with uneven development of institutions and the democracy consolidation hypothesis. We also find that aid has a non-linear effect on democracy. Openness has a positive effect on both democracy and good governance. Oil resources have an adverse effect on democracy. Adult mortality, civil war and adherence to Islam are all detrimental to good governance.