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Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests

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Author Info
Stephen Knack () (The World Bank)

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Abstract

Aid dependence can potentially undermine the quality of governance and public sector institutions by weakening accountability, encouraging rent-seeking and corruption, fomenting conflict over control of aid funds, siphoning off scarce talent from the bureaucracy, and alleviating pressures to reform inefficient policies and institutions. Analyses of cross-country data in this paper provide evidence that higher aid levels erode the quality of governance, as measured by indices of bureaucratic quality, corruption, and the rule of law. These findings support the need for donors to develop less costly and less intrusive ways of disseminating state-of-the-art knowledge on public sector reform in developing countries.

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Publisher Info
Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 68 (2001)
Issue (Month): 2 (October)
Pages: 310-329
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Handle: RePEc:sej:ancoec:v:68:2:y:2001:p:310-329

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  1. Bandeira, Pablo, 2009. "El desarrollo institucional en el contexto de la ineficacia de la ayuda: ¿qué podemos hacer?
    [Promoting institutional development in the context of actual aid ineffectiveness: what can we do?]    ," MPRA Paper 13372, University Library of Munich, Germany. [Downloadable!]
  2. William Easterly, 2007. "Was Development Assistance a Mistake?," American Economic Review, American Economic Association, vol. 97(2), pages 328-332, May. [Downloadable!]
  3. Ugur Karakaplan & Bilin Neyapti & Selin Sayek, 2005. "Aid and Foreign Direct Investment: International Evidence," Working Papers 2005/12, Turkish Economic Association. [Downloadable!]
    Other versions:
  4. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank. [Downloadable!]
  5. Michael P. Shields, 2007. "Foreign Aid And Domestic Savings: The Crowding Out Effect," Monash Economics Working Papers 35/07, Monash University, Department of Economics. [Downloadable!]
  6. Knack, Stephen & Rahman, Aminur, 2004. "Donor fragmentation and bureaucratic quality in aid recipients," Policy Research Working Paper Series 3186, The World Bank. [Downloadable!]
    Other versions:
  7. Deininger, Klaus & Mpuga, Paul, 2004. "Does greater accountability improve the quality of delivery of public services? Evidence from Uganda," Policy Research Working Paper Series 3277, The World Bank. [Downloadable!]
  8. Selin Sayek & Mwanza Nkusu, 2005. "Local Financial Development and the Aid-Growth Relationship," IMF Working Papers 04/238, International Monetary Fund. [Downloadable!]
    Other versions:
  9. James, Ang, 2009. "Financial Liberalization and the Aid-Growth Relationship in India," MPRA Paper 14411, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  10. Tobias Knedlik & Franz Kronthaler, 2006. "Forced to Freedom? Empirical relations between aid and economic freedom," IWH Discussion Papers 8-06, Halle Institute for Economic Research. [Downloadable!]
    Other versions:
  11. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer, vol. 14(5), pages 525-541, October. [Downloadable!] (restricted)
  12. Philipp Harms & Matthias Lutz, 2004. "The Macroeconomic Effects of Foreign Aid: A Survey," University of St. Gallen Department of Economics working paper series 2004 2004-11, Department of Economics, University of St. Gallen. [Downloadable!]
  13. Farida, Moe & Ahmadi-Esfahani, Fredoun, 2008. "Corruption and economic growth in Lebanon," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6043, Australian Agricultural and Resource Economics Society. [Downloadable!]
  14. Mina Baliamoune-Lutz, 2007. "Institutions, Trade, and Social Cohesion in Fragile States," ICER Working Papers 24-2007, ICER - International Centre for Economic Research. [Downloadable!]
    Other versions:
  15. Harms, Philipp & Lutz, Matthias, 2003. "Aid, Governance, and Private Foreign Investment: Some Puzzling Findings and a Possible Explanation," Discussion Paper Series 26128, Hamburg Institute of International Economics. [Downloadable!]
    Other versions:
  16. Heckelman, Jac & Knack, Stephen, 2005. "Foreign aid and market-liberalizing reform," Policy Research Working Paper Series 3557, The World Bank. [Downloadable!]
    Other versions:
  17. Knack, Stephen, 2008. "Sovereign rents and the quality of tax policy and administration," Policy Research Working Paper Series 4773, The World Bank. [Downloadable!]
  18. Abu Sarker, 2005. "New Public Management, Service Provision and Non-Governmental Organizations in Bangladesh," Public Organization Review, Springer, vol. 5(3), pages 249-271, September. [Downloadable!] (restricted)
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