Does Aid Reduce Inequality? Evidence for Latin America

During the last two decades there has been an intense debate over the efficacy and efficiency of international aid. The debate has focused on the performance of beneficiary countries in terms of economic growth. Yet little attention has been paid to the role of aid in income distribution within receiving countries, despite the fact that reducing inequality is an explicit aim of international aid. In this article, we analyse the role of aid in the evolution of income distribution over the last two decades for 18 Latin American countries. While Latin America is the most unequal region of the world, it includes some of the countries currently leading the reduction of inequality at the global level. The region is also currently losing a significant amount of aid disbursement. The main finding of our work, after controlling for several relevant variables, is that there has been a significant effect of international aid on reducing income inequality in Latin America.