The United States has decided to give an equal amount of development aid to an autocratic country that has agreed to make limited market reforms and a democratic country facing high levels of poverty due to the rising cost of fuel and food. Which country is most likely to experience the greatest economic benefit from the aid and why?

What will be an ideal response?

In this scenario, the autocratic country that has agreed to make market-based reforms would be the more likely to experience an economic benefit from development aid. This is because when democracies receive aid, they often divert more funds to subsidies and other public projects to gain or maintain popularity with the people that elected them. Some of these expenditures may enhance growth, but many do not. Even if the aid is targeted toward public works projects such as building a new road or airport, the democratic government can then spend more of its own funds on subsidies. Thus, the aid can often directly or indirectly subsidize public consumption of goods such as food and fuel. The end result is a negative effect of aid in democracies—less growth rather than more. The presence of such aid might even allow the recipient regime to postpone making necessary but hard choices about how it invests its scarce economic resources.