This article analyzes whether, and to what extent, foreign aid is effective in tackling the root causes of flight and reducing the flow of refugees. The authors: (a) analyze whether inflows of foreign aid are effective in reducing the total outflows of refugees from recipient countries (to any destination); and (b) estimate the effects of aid on the number of refugees going to donor countries. The authors employ an instrumental variable approach, using the interaction between donor government/legislature fractionalization and the probability of receiving aid from a particular donor as an instrument for bilateral aid. The analysis is based on refugee data for 141 origin countries from 1976 to 2013 and bilateral Official Development Assistance (ODA) data.
- No evidence that total aid to origin countries reduces total refugee outflows in the short term. Only with long lags of eleven years or more does aid reduce refugee outflows, which appear to be driven by lagged positive effects of aid on economic growth.
- However, where the share of humanitarian aid in total ODA is sufficiently high, aid reduces the number of refugees leaving their country in the short term. Humanitarian aid is more effective in reducing refugee flows in the short run, compared to general development aid—aid reduces refugee outflows as long as the share of humanitarian aid exceeds seven percent of total ODA receipts two periods after it has been disbursed.
- Aid is also more effective (or less ineffective) in countries that are more likely sources of refugee outflows, such as countries that are poorer, more repressive, or hit by more severe conflict and disaster.
- In the short term, donor countries experience increases in refugee inflows, possibly driven by an improved image of donor countries through aid, or by enabling people to afford the cost of fleeing to another country.
- Aid induces recipient governments to encourage the return of their citizens in the short term.
- Aid increases the number of IDPs in the short run, possibly by enabling people to escape imminent threats to their lives, or by supporting the establishment of IDP camps that allow citizens to seek refuge within their own country.
- Aid given to origin countries’ neighbors reduces the flow of refugees from the origin country to the rest of the world and to donor countries in particular, i.e. donors successfully use their aid to induce countries bordering the refugees’ homes to block refugee flows. In the long run, aid to neighbors increases refugee flows, possibly because it becomes comparably easier and more attractive to seek refuge in a neighboring country.