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Why Corrupt Governments May Receive More Foreign Aid

Author

Listed:
  • David DE LA CROIX

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and CORE)

  • Clara DELAVALLADE

    (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

  • David DE LA CROIX & Clara DELAVALLADE, 2009. "Why Corrupt Governments May Receive More Foreign Aid," LIDAM Discussion Papers IRES 2009033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2009033
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2009033.pdf
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    Cited by:

    1. Iqbal, Nasir & Daly, Vince, 2014. "Rent seeking opportunities and economic growth in transitional economies," Economic Modelling, Elsevier, vol. 37(C), pages 16-22.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Zhu, Baoying & Yang, Mingyan & Chu, Xu, 2024. "Good governance and innovation: Economic freedom matters," Technological Forecasting and Social Change, Elsevier, vol. 205(C).
    8. 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.
    9. 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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