From the archive, originally posted by: [ spectre ]

http://www.freakonomics.com/blog/2006/08/29/need-some-foreign-aid-from-the-us-make-sure-to-get-your-country-on-the-un-security-council/

Need some foreign aid from the US?
Make sure to get your country on the UN Security Council.

Ilyana Kuziemko, with co-author Eric Werker, have written a paper
entitled “How Much is a Seat on the Security Council Worth? Foreign
Aid and Bribery at the United Nations.” In this paper, they find that
when a country takes over one of the rotating seats on the UN Security
Council, U.S. foreign aid jumps by almost 60%. When the country leaves
the Security Council, the aid falls back to the old levels. The impact
on aid is even larger when there are important international events
(like invasions of Iraq) that put the Security Council in the
spotlight.

This paper is forthcoming in Journal of Political Economy.
http://www.journals.uchicago.edu/JPE/

Editors:
Steven D. Levitt, Monika Piazzesi, Canice Prendergast, Robert Shimer,
Nancy L. Stokey

jpe-office [at] uchicago [dot] edu

Journal of Political Economy
University of Chicago
1126 E. 59th Street
Chicago, IL 60637
Telephone: (773) 702-8421; Fax: (773) 702-8490

http://www.hbs.edu/research/pdf/06-029.pdf

ABSTRACT

“Ten of the fifteen seats on the U.N. Security Council are held by
rotating members serving two-year terms.  We find that a country’s
U.S. aid increases by 59 percent and its U.N. aid by 8 percent when it
rotates onto the council.  This effect increases during years in which
key diplomatic events take place (when members’ votes should be
especially valuable) and the timing of the effect closely tracks a
country’s election to, and exit from, the council.  Finally, the U.N.
results appear to be driven by UNICEF, an organization over which the
United States has historically exerted great control.

Introduction

Since its inception in 1945, the United Nations has entrusted questions
of global peacemaking to the Security Council.  Given the council’s
power to authorize multilateral sanctions and military action, its
members have played a role in some of the most significant world events
of the past sixty years, from the Korean War to the recent Gulf Wars.
Though critics often argue that the Security Council lacks relevance or
resolve, membership on the council remains a coveted prize among U.N.
member states.  While five of the council’s 15 seats are held by
permanent members, the remaining ten are reserved for countries serving
two-year terms, and the competition for these rotating seats can be
intense (Malone 2000).

The desire to participate more meaningfully in world affairs might
motivate countries to fight for a spot on the Security Council.  It is
also possible, however, that rotating members are able to extract rents
during their time on the council.  Thus, rotating members could trade
their votes for political or financial favors during the two years in
which they enjoy a boost to their diplomatic importance.  Indeed, the
U.S. reportedly issued “promises of rich rewards” to rotating
members in exchange for their support during the run-up to the 2003
invasion of Iraq (Renfrew  2003).  While the Security Council would
seem to present a natural setting to study issues of bribery and
deal-making, economists have largely ignored the question of whether
council membership is related to foreign aid payments.  This omission
is especially surprising given the advantages of the discontinuous
nature of rotating membership for empirical identification.
That there might exist a link between membership on the Security
Council and foreign aid is a serious charge.  As Article 24 of the U.N.
Charter states, member nations “confer on the Security Council
primary responsibility for the maintenance of international peace and
security, and agree that in carrying out its duties under this
responsibility the Security Council acts on their behalf.”  Since the
Security Council is entrusted to act on behalf of all members of the
United Nations, council members are expected to advocate for the global
good-not to extract rents in order to line their own coffers.

In this paper, we investigate whether the pattern of aid payments to
rotating members of the council is consistent with vote buying.  There
are at least three reasons why we might observe a connection between
foreign aid and council membership.  First, as the discussion above
suggests, council members may be trading their votes for cash.  Second,
and less nefarious, is the possibility that membership on the Security
Council simply enables a country to bring its needs to the attention of
the world community.  If the economic needs of developing nations gain
salience when they serve as rotating members, then aid and Security
Council tenure could be positively correlated even in the absence of
vote trading.  Third, a correlation between Security Council membership
and aid might be driven by an omitted variable: a country’s becoming
more integrated in the world community might increase both its
probability of serving on the Security Council and its annual aid
receipts.  Testing for a correlation between council membership and
foreign aid, and differentiating among these three hypotheses, will be
the focus of the empirical work in this paper.

Using country-level panel data, we find a large positive effect of
Security Council membership on foreign aid receipts.  On average, a
non-permanent member of the council enjoys a 59 percent increase in
total aid from the United States and an 8 percent increase in total
development aid from the United Nations.  Further results lend strong
support to the bribery hypothesis over the two alternative hypotheses
mentioned above.  First, we find that aid to Security Council members
is significantly larger during key diplomatic years-that is, years in
which the United Nations receives an especially large amount of media
coverage, or in which a major international event occurs.  The
variation used to identify this effect is plausibly exogenous; it is
driven by the fact that some countries serve on the Security Council
during relatively calm years while others, by chance, are fortunate
enough to serve during a year in which a key resolution is debated and
their vote becomes more valuable.

Second, aid payments sharply increase in the year that a country is
elected to the Security  Council, remain high throughout the two-year
term, and return to their earlier level almost immediately upon
completion of the term.  The sharp increase challenges the notion that
the  correlation is being driven by an unobserved, secular change in a
country’s international influence or diplomatic savoir-faire.
Similarly, the rapid return to baseline aid levels after a  country has
completed its tenure suggests that the aid is not due to a newfound
awareness of the country’s needs.  Instead, the discontinuous pattern
of aid suggests that Security Council  countries experience a windfall
of aid only during the period when they enjoy increased  influence in
the United Nations.

We also examine the politics of aid decisions within the U.N.
bureaucracy.  While Security Council members have increased access to
politically salient information, they have no greater access to the
U.N. agencies that disburse development aid.  Thus, the connection we
find etween council membership and aid receipts might imply that
council members are willing to trade their vote for favors: they
promote another country’s interests in the Security Council in
exchange for development aid from a U.N. agency over which the other
country has influence. By decomposing U.N. development aid into its
agency-level components, we find that UNICEF-an agency long
controlled by the United States-seems to drive the Security Council
effect.  Accordingly, our results suggest that the U.S. attempts to
influence rotating members both with direct foreign aid payments as
well as with funds channeled through a U.N. agency it influences.

The results of this paper are consistent with previous empirical
studies that demonstrate a political component to the allocation of
foreign aid.  Alesina and Dollar (2000) find that political  and
strategic variables explain a large share of the direction of foreign
aid flows.  Meernik,  Krueger, and Poe (1998) contend that security
issues were more important for U.S. aid allocation during the Cold War
than following it, and that democracy promotion has since risen in
prominence as a determinant of aid.  Previous studies on foreign aid
and voting in the U.N. General Assembly find mixed results and do
little to identify the direction of causality (Wittkopf 1973; Rai 1980;
Kegley and Hook 1991; Wang 1999).

Our results are also pertinent to two contentious debates currently
taking place amongst a wider audience.  The first is the long-standing
debate about the effectiveness of foreign aid (see for example Easterly
2001), a debate reignited by the recent push for the G-8 nations to
increase foreign aid by $50 billion (BBC 2005).  As our results
indicate that strategic interests have a causal impact on foreign aid
decisions, they suggest a possible explanation for the disappointing
track record of aid:  as donor countries use aid strategically, they do
not prioritize humanitarian concerns when crafting aid packages.
Therefore, the weak historical relationships between aid and poverty
alleviation may not suggest that more targeted, development-oriented
aid will similarly fail in the future. Second, our paper contributes to
the debate over U.N. reform.  The oil-for-food scandal (Hsieh and
Moretti 2006; Heaton 2006) and the refusal of the Security Council to
authorize the 2003 invasion of Iraq have been used by critics to
demonstrate the organization’s corruptibility, on the one hand, or
irrelevance, on the other.  Additionally, calls have been made to
drastically change the structure of the Security Council.  Our results
suggest the potential need for an additional set of reforms-namely,
measures that would help insulate the rotating members from the
financial influence of the greater powers. The remainder of the paper
is organized as follows.  In Section II we relate this paper to the
literature on U.S.  congressional committees, noting that because of
the highly discontinuous nature of Security Council membership, the
U.N. setting provides econometrically cleaner tests of the hypothesis
that committee membership confers tangible benefits.  In Section III we
describe the data and our empirical strategy.  In Section IV we report
the results of the impact of Security Council membership on foreign aid
receipts, specifically U.S. and U.N. aid.  Section V offers concluding
remarks.

Conclusion

Thus far, we have argued that non-permanent members of the U.N.
Security Council receive extra foreign aid from the United States and
the United Nations, especially during years when the attention focused
on the council is greatest.  Our results suggest that council
membership itself, and not simply some omitted variable, drives the aid
increases.  On average, the typical developing country serving on the
council can anticipate an additional $16 million from the United States
and $1 million from the United Nations.  During important years, these
numbers rise to $45 million from the United States and $8 million from
the United Nations.  Finally, the U.N. finding may actually be further
evidence of U.S. influence: UNICEF, an organization over which the
United States has historically had great control, seems to be driving
the increase in U.N. aid.

Ideally, a study of vote-buying in the United Nations would test for
the ability of Security  Council aid to influence actual voting.
Unfortunately, this is difficult for two reasons.  First, we  cannot
observe the counter-factual: how the country would have voted in the
absence of vote-buying activity.  Second, votes themselves are
strategic.  Agenda setters typically know, before putting a resolution
up for a vote, the preferences of each member.  Perhaps this is why
most Security Council resolutions are passed unanimously, and why
failed resolutions are rar -recall that the 2003 resolution to
authorize the invasion of Iraq never actually came to a vote. Due to
these identification problems, we believe that actual outlays of aid
are the most trustworthy way to measure the presence of vote-buying in
the Security Council.  By providing extra aid to non-permanent members
of the council, especially during years when council votes are
especially important, agenda setters have implicitly revealed their
faith in the Security Council’s relevance in world affairs.”