The Great Aid Transition: How Global Crisis Reshaped Aid Effectiveness in Africa

How do global crises affect development aid effectiveness? We explore this question by analyzing the impact of 2008 global financial crisis on development aid effectiveness in Africa using a novel triple-difference design (aid by donor × governance quality × trade exposure) estimated pre and post 2008 with nightlights data across 41 African countries observed over the period 2000 to 2021. We find Chinese aid to be effective in well governed and trade exposed countries following the crisis whereas OECD aid lost its governance dependent advantage. Structural break test confirms 2008 as a turning point for Chinese aid effectiveness. Total aid concentration outperforms aid diversification by 79% relative to pre-crisis patterns in terms of effectiveness. US aid appears to be inequality reducing post 2008. Chinese aid seems effective post 2008 irrespective of its modalities ‘ODA like’ and ‘other official flows’ whereas US aid is effective only under the modality ‘economic’. The results appear to be robust to GDP as an alternative outcome variable and placebo test.