Foreign aid, economic globalization, and pollution

Sijeong Lim, Victor Menaldo, Aseem Prakash

Research output: Contribution to journalArticlepeer-review

25 Citations (Scopus)


This paper explores how trade and foreign direct investment (FDI) condition the effect of foreign aid on environmental protection in aid-recipient countries. We suggest that (1) environmental protection should be viewed as a public good and (2) all else equal, resource flows from abroad (via aid, trade, and FDI) influence governments’ incentives to provide public goods. (3) Because these resources shape governments’ incentives differently, their interactive effects should be examined. We begin with the assumption that developing country governments seek some optimal level of environmental protection, a level conditioned by their factor-intensive growth phase. We hypothesize that at low levels of export receipts or FDI inflows from the developed world, foreign aid is associated with superior environmental protection. This is because foreign aid, as an environmentally neutral addition to revenue, allows recipient governments to partially relax the trade-off between economic growth and environmental protection. As levels of export receipts or FDI inflows from the developed world increase, however, the salutary effect of foreign aid will diminish and eventually be reversed. This is because foreign aid mitigates the recipient government’s dependence on traders and investors in the developed world, and concomitantly reduces their pro-environmental policy leverage. Our analysis of 88 aid recipients, for the period 1980–2005, lends support to our argument.

Original languageEnglish
Pages (from-to)181-205
Number of pages25
JournalPolicy Sciences
Issue number2
Publication statusPublished - 2015 Jun 29
Externally publishedYes


  • Diffusion
  • Economic globalization
  • Foreign aid
  • Pollution

ASJC Scopus subject areas

  • Development
  • Sociology and Political Science
  • Social Sciences(all)
  • Public Administration
  • Management, Monitoring, Policy and Law


Dive into the research topics of 'Foreign aid, economic globalization, and pollution'. Together they form a unique fingerprint.

Cite this