A Signal of Altruistic Motivation for Foreign Aid

We develop a stylized theoretical model showing that countercyclical transfers from a wealthy donor to a poorer recipient generate a signal of altruistic donor motivation. Applying the model to OECD foreign aid (ODA) data we find the signal present in approximately one-sixth of a large set of donor-recipient pairs. We then undertake two out-of-model exercises to validate the signal: a logit regression of signal determinants and the growth effects of ODA from signal-positive pairs are compared to non-signal bearers. The logit indicates our signal meaningfully distinguishes donor-recipient pairs by characteristics typically associated with altruism. The growth exercise shows ODA from signal bearers displays stronger reverse causation and more positive long-run effects. Beyond foreign aid, our signal of altruistic motivation may be applicable to a wide range of voluntary transfers.