Disasters, Dictators, and Donors: The Impact of Foreign Aid on Economic Activity (Mis)Reporting

ABSTRACT

This paper examines how governments manipulate economic data to secure more foreign disaster aid. By using nighttime lighting as a reliable measure of economic activity, we make two key findings: (1) foreign disaster aid is positively linked to a country's understatement of its gross domestic product, indicating a deliberate strategy to attract aid; and (2) after a disaster, aid‐receiving countries tend to exaggerate their reported economic growth, possibly to create a positive image for donors. Additionally, we find that well‐developed insurance markets reduce misreporting, while more autocratic states are more likely to engage in such practices. These insights shed light on the complex relationship between economic data, disaster aid, and governance.