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On the channels of foreign aid to corruption

  • Asongu Simplice

    ()

    (Yaoundé/Cameroun)

  • Mohamed Jellal

    ()

    (Rabat/Morocco)

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 URL: http://www.afridev.org/RePEc/agd/agd-wpaper/On-the-channels-of-foreign-aid-to-corruption.pdf
File Function: Revised version, 2013
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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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  1. 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.
  2. Alesina, Alberto & Weder, Beatrice, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," Scholarly Articles 4553011, Harvard University Department of Economics.
  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.
  4. Ernesto Crivelli & Sanjeev Gupta & Priscilla S. Muthoora & Dora Benedek, 2012. "Foreign Aid and Revenue; Still a Crowding Out Effect?," IMF Working Papers 12/186, International Monetary Fund.
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  7. Simplice A. Asongu, 2012. "Fighting corruption in Africa: do existing corruption-control levels matter?," International Journal of Development Issues, Emerald Group Publishing, vol. 12(1), pages 36-52, February.
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  9. 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.
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  12. Kodila Tedika, Oasis, 2012. "Empirical Survey on the Causes of the Corruption
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  13. 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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  15. 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.
  16. 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.
  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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