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Will The Global Financial Crisis Lead To Lower Aid? A First Look At United States ODA

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Executive Summary

Analyzing US economic and foreign aid data from 1967 to 2007, this paper investigates whether adverse economic and financial conditions are negatively linked to Official Development Assistance (ODA). It finds empirical evidence that US ODA has tended to decline as its economic conditions worsen. A 1 unit increase in the misery index (sum of inflation and unemployment) is associated with a roughly 0.01 percentage point decline in US ODA expressed as a share of GNI. Furthermore, an increase in financial volatility from 1 percent to 2 percent (measured by the standard deviation of the rate of return of the S&P500) is associated with a decrease in US ODA by about $2.78 billion.

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