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Why corrupt governments may receive more foreign aid

Author

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  • DE LA CROIX, David

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • DELAVALLADE, Clara

    (Abdul Latif Jameel Poverty Action Lab.)

Abstract

In 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.

Suggested Citation

  • DE LA CROIX, David & DELAVALLADE, Clara, 2009. "Why corrupt governments may receive more foreign aid," LIDAM Discussion Papers CORE 2009065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2009065
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2009.html
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    Cited by:

    1. Maiden, Emily & Brockway, Mark, 2018. "Parlez-vous français? Language and agricultural aid allocation strategies in northern Mali," World Development, Elsevier, vol. 106(C), pages 356-375.
    2. Mfouapon Alassa & Kamdem Cyrille Bergaly & Mohammadou Nourou, 2022. "Agricultural Foreign Aid Allocation in Sub-Saharan Africa: The importance of Democracy and Quality of Governance," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(3), pages 84-100, March.
    3. Menard, Audrey-Rose & Weill, Laurent, 2016. "Understanding the link between aid and corruption: A causality analysis," Economic Systems, Elsevier, vol. 40(2), pages 260-272.
    4. Simplice A. Asongu & Jacinta C. Nwachukwu, 2016. "Foreign aid and governance in Africa," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 69-88, January.
    5. Iqbal, Nasir & Daly, Vince, 2014. "Rent seeking opportunities and economic growth in transitional economies," Economic Modelling, Elsevier, vol. 37(C), pages 16-22.
    6. Winters, Matthew S. & Martinez, Gina, 2015. "The Role of Governance in Determining Foreign Aid Flow Composition," World Development, Elsevier, vol. 66(C), pages 516-531.
    7. Aurore Gary & Audrey-Rose Menard, 2015. "Aid, Trade and Migration : How are OECD countries policies connected in times of crisis?," Working Papers of BETA 2015-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    8. Martin C. Steinwand, 2015. "Foreign aid and political stability," Conflict Management and Peace Science, Peace Science Society (International), vol. 32(4), pages 395-424, September.

    More about this item

    Keywords

    corruption; aid; government spending; institutions;
    All these keywords.

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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