Why Corrupt Governments May Receive More Foreign Aid
AbstractIn this paper we argue that if the cross-country heterogeneity in productivity is more important than the heterogeneity in government quality, it can be optimal to give more foreign aid to more corrupt countries. We build a multi-country model of optimal aid in which we disentangle the correlation between aid and equilibrium corruption into two components: the first one reflects variations in the quality of institutions and the second encompasses variations in productivity levels. The data suggest that both components of the correlation are significant, however the effect of variations in productivity levels is stronger. This implies that most corrupt countries, since they are also the poorest, receive higher amounts of foreign aid.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009033.
Date of creation: 19 Oct 2009
Date of revision:
Corruption; Aid; Government spending; Institutions;
Other versions of this item:
- DE LA CROIX, David & DELAVALLADE, Clara, 2009. "Why corrupt governments may receive more foreign aid," CORE Discussion Papers 2009065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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- Nasir Iqbal & Vince Daly, 2013. "Rent Seeking Opportunities and Economic Growth in Transitional Economies," PIDE-Working Papers 2013:87, Pakistan Institute of Development Economics.
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