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Why corrupt governments may receive more foreign aid

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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," CORE Discussion Papers 2009065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2009065
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    Cited by:

    1. 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.
    2. 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.
    3. repec:eee:wdevel:v:106:y:2018:i:c:p:356-375 is not listed on IDEAS
    4. Iqbal, Nasir & Daly, Vince, 2014. "Rent seeking opportunities and economic growth in transitional economies," Economic Modelling, Elsevier, vol. 37(C), pages 16-22.
    5. 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.
    6. 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.

    More about this item

    Keywords

    corruption; aid; government spending; institutions;

    JEL classification:

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

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