Do diplomatic visits promote official development aid? Evidence from Japan

Abstract

Do diplomatic visits by political leaders of recipient countries to donors influence the amount of bilateral Official Development Assistance (ODA) granted by donors? Some might argue that as aid allocation is already determined by a donor’s cost and benefit calculation, diplomatic visits do not affect the donor’s aid allocation behaviour. Despite the importance of answering such questions regarding the determinants of aid allocation, no research has been conducted on this topic. Focusing on the case of Japan, this study explores the relationship between diplomatic visits from recipients and aid allocation. Since the 1960s, Japan has been one of the top five aid-giving countries of the world; however, its motives have been criticised as self-interested and solely in pursuit of ulterior economic interests. Through an analysis of panel data measuring ODA given by Japan to 179 recipient countries between 1969 and 2015, this paper reached the following conclusions. First, diplomatic visits to Japan by political leaders from aid recipient countries resulted in said countries receiving increased bilateral ODA from Japan in cases where countries were already receiving aid from Japan. The more diplomatic visits made to Japan, the greater the increase in aid. This result can be explained by three mechanisms: (1) diplomatic visits are a costly signal of developing countries’ need for aid, (2) visits to donor countries would create domestic political pressure in donor countries when visitors openly require financial assistance, and (3) face-to-face talks are likely to provide opportunities for leaders of a donor to gain greater knowledge of recipients’ needs. This result was verified using different models and several robustness checks such as an instrumental variables approach that accounts for reverse causality and endogeneity, error-correction model (ECM), which can control for temporal dependence and the problem of co-integration. Second, diplomatic visits were shown to have no relation with the initiation of new aid agreements in cases of developing countries that have not received aid from Japan in the past. This is because, there are only few countries such as North Korea that do not receive ODA from Japan when their leaders visit Japan for the first time. This result implies that aid initiation has other causes rather than diplomatic visits. This study makes two contributions to the study of aid allocation and international relations. Although a considerable amount of quantitative research on aid allocation