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On the channels of foreign aid to corruption

  • Simplice A Asongu

    ()

    (African Governance and Development Institute)

  • Jellal Mohamed

    ()

    (Al Makrîzi Institut d''Economie)

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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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 3 ()
Pages: 2191-2201

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Handle: RePEc:ebl:ecbull:eb-13-00454
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  1. Dora Benedek & Ernesto Crivelli & Sanjeev Gupta & Priscilla Muthoora, 2014. "Foreign Aid and Revenue: Still a Crowding-Out Effect?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(1), pages 67-96, March.
  2. Alesina, Alberto & Weder, Beatrice, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," Scholarly Articles 4553011, Harvard University Department of Economics.
  3. 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.
  4. 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).
  5. 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.
  6. Asongu Simplice, 2012. "Fighting corruption in Africa: do existing corruption-control levels matter?," Working Papers 12/012, African Governance and Development Institute..
  7. Asongu Simplice, 2013. "On the effectiveness of foreign aid in institutional quality," Working Papers 13/017, African Governance and Development Institute..
  8. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  9. 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.
  10. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  11. 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.
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  13. 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.
  14. Asongu Simplice, 2012. "On the effect of foreign aid on corruption," Working Papers 12/031, African Governance and Development Institute..
  15. Kodila Tedika, Oasis, 2012. "Empirical Survey on the Causes of the Corruption
    [Aperçu empirique sur les causes de la corruption]
    ," MPRA Paper 41484, University Library of Munich, Germany.
  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. 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.
  18. 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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