Abstract

Joint work with Andreas Fuchs, Tobias Heidland, and Lukas Wellner.

Does foreign aid to developing economies reduce migration from these countries? Despite a lack of rigorous evidence on this question, policymakers in developed countries promote foreign aid to address the "root causes" of migration in the Global South. This article is the first global study that provides micro-evidence on this suggested link, combining exceptionally rich data from a sample of almost one million individuals across the entire developing world with geocoded data on World Bank aid project allocation over the period 2008--2020. We show that, on average, foreign aid reduces individual migration preferences across all world regions. This effect also translates into lower flows of migrants and asylum seekers in two of the most important origin regions -- Sub-Saharan Africa as well as the Middle East and North Africa. Our findings thus support the rationality of the political strategy for these regions. We show that these aggregate effects are caused by more positive individual expectations regarding the future as well as improved reported living standards. Extensive heterogeneity analysis shows that World Bank aid targeting the production sectors (i.e., agriculture, industry, and mining) drives most of this effect, with the main channels being improvements in individual welfare, employment, and perceptions about the future. However, our findings also show that this effect disappears in low-income countries, indicating that contextual factors matter.