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Do natural resources condition the aidgovernance relationship? Evidence from Africa

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  • Audrey Menard
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    Abstract

    This paper offers some evidence on why the governance effect of foreign aid is shadowy in African countries. The evidence suggests that the aid-governance linkages can be robust if the type of aid is differentiated between bilateral and multilateral aid and if the governance effect of aid is conditioned on the size of natural resources rents. A dynamic panel data analysis over the period 1997 – 2008 reveals that (i) foreign aid improves governance if and only if aid is allocated by multilateral agencies; and (ii) the effect of multilateral aid is the stronger the less the recipient country is dependent on natural resources, in particular on oil resources. The combination of multilateral aid and oil rents independence favour the development of good governance in Africa.

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    Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2012-18.

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    Date of creation: 2012
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    Handle: RePEc:ulp:sbbeta:2012-18

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    Keywords: Governance; Natural resources; Oil; Multilateral aid.;

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    1. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, 09.
    2. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, vol. 83(1), pages 176-197, May.
    3. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2010. "Are ‘New’ Donors Different? Comparing the Allocation of Bilateral Aid between Non-DAC and DAC Donor Countries," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 25, Courant Research Centre PEG.
    4. Svensson, Jakob, 1997. "When is foreign aid policy credible : aid dependence and conditionality," Policy Research Working Paper Series 1740, The World Bank.
    5. Vicente, Pedro C., 2010. "Does oil corrupt? Evidence from a natural experiment in West Africa," Journal of Development Economics, Elsevier, vol. 92(1), pages 28-38, May.
    6. Raghuram G. Rajan & Arvind Subramanian, 2009. "Aid, Dutch Disease, and Manufacturing Growth," Working Papers 196, Center for Global Development.
    7. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," OxCarre Working Papers 020, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    8. Frey, Bruno S. & Schneider, Friedrich, 1986. "Competing models of international lending activity," Journal of Development Economics, Elsevier, vol. 20(2), pages 225-245, March.
    9. Younas, Javed, 2008. "Motivation for bilateral aid allocation: Altruism or trade benefits," European Journal of Political Economy, Elsevier, vol. 24(3), pages 661-674, September.
    10. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
    11. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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