For example, the Democratic Republic of the Congo (DRC) is rich in mineral resources—it has the world’s largest reserves of cobalt and accounts for 68 percent of global cobalt production. Cobalt is a critical component of battery technology in electric vehicles. It is no surprise, then, that the DRC has become the darling of major economic powers, such as China, the United States, and the European Union, as they sign major mineral contracts with the DRC. Other anecdotal evidence of the concomitance between foreign aid and natural resource abundance exists in Guyana, Mongolia, Mozambique, Namibia, and Papua New Guinea.
Throughout the 19th century, Western European powers competed overtly to secure access to natural resources, such as cotton, copper, iron, and rubber, which were critical for their industries. Nations undertook these colonial enterprises through coercion and military might. In the modern era, rather than openly using coercion, the hidden motive of foreign aid could be to grease the wheels before signing lucrative mining contracts for exploration, extraction, and trade.
Our research exploits the timing and size of major mineral discoveries to identify evidence of what we have coined the hidden Samaritan contest. We obtained data on mineral discoveries from 1975 to 2023 from MinEx, a consultancy. The median value of the discoveries in the data is 29.8 percent of the nation’s gross domestic product. We complemented our analysis with data on hydrocarbon discoveries from 1975 to 2014 obtained from the late Myron “Mike” Horn, former president of the American Association of Petroleum Geologists.
Major mineral discoveries are frequent and widespread. In the past several decades, there have been hundreds of discoveries of mineral and hydrocarbon resources around the world, including in South Asia, Latin America, and, most notably, sub-Saharan Africa. In many of these countries, property rights are with the state rather than the private sector, as in the United States. Thus, major discoveries immediately increase the known wealth of these nations. This increases the value of the collateral that nations can use to borrow internationally. Therefore, if the exclusive motive of donors is to reduce poverty, countries with major resource discoveries should receive less aid.
However, developing countries tend to receive more foreign aid following major resource discoveries. Foreign aid, as recorded by the Development Assistance Committee, is a drop in the bucket for traditional donor countries; these nations spent $214.4 billion on foreign aid in 2023, or 0.37 percent of their combined gross national income (GNI), a measure similar to gross domestic product. But foreign aid is a major source of funding for most developing economies. Foreign aid to exporters of mineral resources has reached peaks of 67.2 percent of GNI in the DRC, 57 percent in Zambia, and 17.2 percent in Mongolia.
Our analysis of the data suggests that donor countries are indeed motivated by both altruism and a desire to secure access to natural resources. Our findings show that recipient countries that make major resource discoveries receive more aid at a faster rate compared with similar countries without such discoveries. That is a paradox, considering that major discoveries are associated with an effective relaxation of international borrowing constraints. If anything, countries that made a discovery should receive less aid.
Surprisingly, our investigation into China’s role in driving our findings shows that the country did not directly promote quid pro quos between donors and would-be recipients rich in natural resources. However, the evidence does suggest that China indirectly drove this phenomenon. Indeed, our findings became apparent in the data after 2001, the year when China entered the World Trade Organization. This development intensified global competition for resources, as China’s growing demand has increased scarcity. Basically, the relationship our research has uncovered between foreign aid and natural resources exists when there is a high degree of global competition for access to natural resources.
An alternative explanation for the hidden motive driving aid to countries following resource discoveries could be that donors want to be associated with economic success stories. Mozambique, which discovered large oil and gas reserves, is a case in point. The country received substantial foreign direct investment that created jobs outside the resource sectors. Such apparent success can lead donors to bet on the continued success of countries like Mozambique to showcase that foreign aid is effective.
If the alternative explanation were correct, donors would be enticed to give more aid in the form of loans rather than grants to the country that discovered resources, anticipating that recipient countries could repay the loans in the next few years. However, our research finds that aid in the form of loans and grants increased following discoveries. Additionally, bilateral aid increased more from the discoverer’s home country than from other countries.
Our findings have important policy implications. Although several traditional donors in advanced economies have announced they will limit their expenditure on aid, it is likely that aid will continue to play a key role in helping to secure access to critical minerals. Currently, this race between economic powers is especially acute, given decarbonization and digitalization. For major powers to dominate the new industries that will arise from these transformations, they must secure access to critical minerals, such as lithium, cobalt, and rare-earth elements. The extraordinary growth in demand for these vital minerals is increasing their prices and stimulating new mineral discoveries. The new geopolitical environment could further exacerbate the self-interest motive of donors desperate to secure access to minerals crucial for their domestic industries.
