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On the channels of foreign aid to corruption

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  • Asongu Simplice

    ()
    (Yaoundé/Cameroun)

  • Mohamed Jellal

    ()
    (Rabat/Morocco)

Abstract

The debate by Okada & Samreth (2012, EL) and Asongu (2012, EB; 2013, EEL) on ‘the effect of foreign aid on corruption’ in its current state has the shortcoming of modeling corruption as a direct effect of development assistance. This note extends the debate by assessing the channels of foreign aid to corruption in 53 African countries for the period 1996-2010. Two main findings are established to unite the two streams of the debate. (1) Foreign aid channeled through government’s consumption expenditure increases corruption. (2) Development assistance channeled via private investment and tax effort decreases corruption. It follows that foreign aid that is targeted towards reducing corruption should be channeled via private investment and tax effort, not through government expenditure. Our results integrate an indirect component and reconcile the debate by showing that, the effect could either be positive or negative depending on the transmission channel.

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File Function: Revised version, 2013
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Bibliographic Info

Paper provided by African Governance and Development Institute. in its series Working Papers with number 13/018.

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Length: 16
Date of creation: 26 Jun 2013
Date of revision:
Publication status: Published in Economics Bulletin
Handle: RePEc:agd:wpaper:13/018

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Keywords: Foreign Aid; Political Economy; Development; Africa;

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References

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  1. Felipe Larraín & José Tavares, 2004. "Does Foreign Direct Investment Decrease Corruption?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 217-230.
  2. Asongu Simplice, 2013. "On the effectiveness of foreign aid in institutional quality," Working Papers 0001, African Governance and Development Institute., revised Jan 2013.
  3. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  4. Simplice A, Asongu, 2012. "Fighting corruption in Africa: do existing corruption-control levels matter?," MPRA Paper 36900, University Library of Munich, Germany.
  5. Simplice A, Asongu, 2012. "On the effect of foreign aid on corruption," MPRA Paper 36545, University Library of Munich, Germany.
  6. Richard Bird & Jorge Martinez-Vazquezb & Benno Torgler, 2007. "Tax Effort: The Impact of corruption, Voice and Accountability," International Tax Program Papers 0702 Classification - JEL, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  7. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Development assistance and development finance: evidence and global policy agendas," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(6), pages 819-836.
  8. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
  9. Okada, Keisuke & Samreth, Sovannroeun, 2011. "The effect of foreign aid on corruption: A quantile regression approach," MPRA Paper 27969, University Library of Munich, Germany.
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  11. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  12. Kodila Tedika, Oasis, 2012. "Empirical Survey on the Causes of the Corruption
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  13. Léonce Ndikumana & Mina Baliamoune-Lutz, 2008. "Corruption and Growth: Exploring the Investment Channel," UMASS Amherst Economics Working Papers 2008-08, University of Massachusetts Amherst, Department of Economics.
  14. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  15. Morrissey, Oliver, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  16. Paul Mosley & John Hudson & Sara Horrell, 1992. "Aid, the public sector and the market in less developed countries: A return to the scene of the crime," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(2), pages 139-150, 03.
  17. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 310-329, October.
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Cited by:
  1. Asongu, Simplice A, 2013. "Fighting African corruption when existing corruption-control levels matter in a dynamic cultural setting," MPRA Paper 52209, University Library of Munich, Germany.
  2. Asongu Simplice, 2014. "On foreign aid distortions to governance," Working Papers 14/003, African Governance and Development Institute..

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