Analyzing the effects of ‘unearned foreign income’ by econometric means (sample of 97 countries between 1975 and 2004), Ahmed (2012) concludes that foreign aid and remittances led to policies that resulted in reducing government expenditures on welfare goods in order to fund patronage. Unearned foreign income is defined as “income generated from outside a country’s border than can change (either directly or indirectly) a government’s revenue base”, foreign aid is “understood as a transfer of funds from the donor government to the recipient government”, whereas remittances represent a “transfer of funds from individuals abroad to individuals (households) in the home country” (Ahmed 2012: 146). Project aid, more specifically, development and humanitarian assistance which is channeled from foreign government to non-governmental or civil society organizations (NGO, CSO) is not part of the model. However, taking into consideration such aid is mostly spent either on consumption of goods or on providing ‘public’ services (health care, education, etc), one can assume an effect similar to that of the remittances. The mechanism established by Ahmed (2012) argues for a combined effect: a fraction of foreign aid finances patronage directly (income effect), whereas the remittances (income from foreign-financed NGOs, service provided by foreign-funded organizations) permit the government to divert expenditures from the provision of welfare goods to patronage (substitution effect) due to the fungibility of money (Ahmed 2012).
Accepting the argument that ‘unearned foreign income’ can prolong regime survival by mitigating revolutionary demands, it is worthwhile to explore the role foreign aid can play in maintaining stability or promoting change in the context of legitimacy. To formulate it more clearly: if ‘unearned foreign income’ can contribute to preserving the status quo, namely to the stability of authoritarian regimes and it is explained by the combined effects of aid and remittance inflows, how can we explain the Arab Spring, the sudden outbreak of public discontent, aspirations for democratic change and decreasing legitimacy of autocratic regimes? How are foreign aid disbursements related to legitimacy? How can they contribute to relative stability (Israel), modest demonstrations against the regime (Jordan, Lebanon, Palestine), ‘revolution’ and military coup (Egypt)? The next posts will try to explore these issues.
Faisal Z. Ahmed, ‘The Perils of Unearned Foreign Income. Aid, Remittances and Government Survical’. American Political Science Review 106, no. 1. (2012): 146-165.