Aid as a Migration Policy Tool

ABSTRACT Foreign aid is often promoted as a way to curb emigration by improving welfare in countries of origin. However, the effectiveness of such a policy remains debated. To contribute to this debate, we develop a random utility maximisation model yielding a gravity equation, which we estimate using OECD migration and aid data for 2011–2019. We exploit the differences between bilateral aid and multilateral aid, for which donors are masked, to isolate the donor‐specific and non‐donor‐specific effects of aid on migration. We show that aid increases rather than reduces migration. The donor‐specific channel plays a dominant role in explaining the positive effect of aid on migration, primarily through an information channel.