Foreign aid and the quality of electricity supply: evidence from developing countries

Abstract

Developing countries often rely on foreign aid to support poverty reduction and broader development objectives. Yet, despite decades of development assistance, there is still no clear consensus on whether aid effectively improves development outcomes. This study contributes to this debate by examining the relationship between foreign aid and the quality of electricity supply in developing countries. The quality of electricity supply deserves particular attention because, beyond access to energy, it reflects the reliability and consistency of electricity services that underpin productivity, industrialization, and structural transformation. Using cross-sectional data for 91 developing countries over the period 2007–2017, the findings suggest that higher aid inflows are associated with lower electricity supply quality. Additional analyses show that multilateral aid, as well as aid from the United States and the United Kingdom, is also negatively associated with electricity quality. The analysis further indicates that this relationship may operate through governance quality and human capital. Overall, the results remain robust across several alternative specifications and estimation approaches.