On Foreign Aid Distortions to Governance

African Governance and Development Institute WP/14/003

21 Pages Posted: 10 Sep 2014

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Date Written: January 8, 2014

Abstract

The Kangoye (2013, TDE) findings on the negative nexus between foreign aid unpredictability and governance could seriously affect debates in academic and policy making circles. Using the theoretical underpinnings of the celebrated Eubank (2012, JDS) literature, we first confirm Kangoye’s findings. Then extend the concept of governance from corruption to political, economic, institutional and general versions of the phenomenon. Findings from the extension run counter to those of Kangoye. It follows that in the presence of foreign aid uncertainty, governments could be constrained to improve governance standards in exchange for or anticipation of more dependence on local tax revenues. The empirical evidence is based on 53 African countries for the period 1996-2010. Two direct policy implications result. First, the Kangoye findings for developing countries are relevant for Africa. Second, when the concept of governance is not restricted to corruption, the findings become irrelevant for the continent.

Keywords: Uncertainty; Foreign aid; Governance; Development; Africa

JEL Classification: C53; F35; F47; O11; O55

Suggested Citation

Asongu, Simplice, On Foreign Aid Distortions to Governance (January 8, 2014). African Governance and Development Institute WP/14/003. Available at SSRN: https://ssrn.com/abstract=2493413 or http://dx.doi.org/10.2139/ssrn.2493413

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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