On the Channels of Foreign Aid to Corruption

Economics Bulletin, 33(3), pp. 2191-2201 (2013).

16 Pages Posted: 9 Sep 2014 Last revised: 1 Apr 2015

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Mohamed Jellal

Al Makrizi Institute of Economy

Date Written: June 8, 2013

Abstract

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.

Keywords: Foreign Aid; Political Economy; Development; Africa

JEL Classification: B20; F35; F50; O10; O55

Suggested Citation

Asongu, Simplice and Jellal, Mohamed, On the Channels of Foreign Aid to Corruption (June 8, 2013). Economics Bulletin, 33(3), pp. 2191-2201 (2013).. Available at SSRN: https://ssrn.com/abstract=2493353 or http://dx.doi.org/10.2139/ssrn.2493353

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Mohamed Jellal

Al Makrizi Institute of Economy ( email )

Rabat
Morocco

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