This paper explores why large inflows of foreign aid can lead to both civil society growth and institutional democratic stagnation in post-conflict settings, using Cambodia as a case study. By using a process-tracing method, four causal mechanisms are identified to explain this paradox: government-controlled aid, rent-seeking behaviors, aid targeting civil society, and strengthened civil society. The findings suggest that while foreign aid targeted at civil society can lead to empowerment in service delivery and promotion of civic engagement, it can also enable rent-seeking within government through the corruption of aid inflows and suppression of opposition and civil society. This paper contributes to the growing literature on aid effectiveness by demonstrating how foreign aid can simultaneously strengthen civil society and reinforce authoritarian activities within the government.