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On the channels of foreign aid to corruption

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  • Asongu, Simplice A
  • Jellal, Mohamed

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49378.

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Date of creation: 26 Jun 2013
Date of revision: 28 Aug 2013
Publication status: Published in Economics Bulletin 3.33(2013): pp. 2191-2201
Handle: RePEc:pra:mprapa:49378

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

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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, 2012. "Fighting corruption in Africa: do existing corruption-control levels matter?," Working Papers 12/012, African Governance and Development Institute..
  3. Asongu, Simplice A., 2013. "On the effectiveness of foreign aid in institutional quality," European Economic Letters, European Economics Letters Group, vol. 2(1), pages 12-19.
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  7. Okada, Keisuke & Samreth, Sovannroeun, 2012. "The effect of foreign aid on corruption: A quantile regression approach," Economics Letters, Elsevier, vol. 115(2), pages 240-243.
  8. Simplice A, Asongu, 2012. "On the effect of foreign aid on corruption," MPRA Paper 36545, University Library of Munich, Germany.
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  14. 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.
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  16. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Development Assistance and Development Finance: Evidence and Global Policy Agendas," Working Paper Series RP2005/23, World Institute for Development Economic Research (UNU-WIDER).
  17. 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).
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    ," MPRA Paper 41484, University Library of Munich, Germany.
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Cited by:
  1. Asongu Simplice, 2014. "On foreign aid distortions to governance," Working Papers 14/003, African Governance and Development Institute..
  2. 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.

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