Foreign Aid and Governance in Africa

International Review of Applied Economics, 30(1), pp. 69-88 (September, 2016 Forthcoming)

35 Pages Posted: 1 Mar 2015 Last revised: 21 Feb 2016

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Jacinta Nwachukwu

University of Huddersfield - Business School

Date Written: December 11, 2014

Abstract

Purpose – This paper investigates the effect of foreign aid on governance in order to extend the debates on foreign aid and to verify common positions from Moyo’s ‘Dead Aid’, Collier’s ‘Bottom Billion’ and Eubank’s ‘Somaliland’. The empirical evidence is based on updated data from 52 African countries for the period 1996-2010.

Design/methodology/approach – An endogeneity robust instrumental variable Two-Stage-Least Squares empirical strategy is employed.

Findings – The findings reveal that development assistance deteriorates economic (regulation quality and government effectiveness) and institutional (corruption-control and rule of law) governance, but has an insignificant effect on political (political stability, voice and accountability) governance. While, these findings are broadly in accordance with Moyo (2009) and Collier (2007) on weak governance, they neither confirm the Eubank (2012) position on political governance nor the Asongu (2012) stance on the aid-corruption nexus in his debate with Okada & Samreth (2012).

Practical implications – The use of foreign aid as an instrument to influence the election and replacement of political leaders in Africa may have insignificant results. It is time to solve the second tragedy of foreign aid and that economists and policy makers start rethinking the models and theories on which foreign aid is used to influence economic, institutional and political governance in recipient countries.

Originality/value – The paper extends the debate on foreign aid and institutions in Africa in the light a plethora of recent studies in the aid literature.

Keywords: Foreign Aid; Political Economy; Development; Africa

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

Suggested Citation

Asongu, Simplice and Nwachukwu, Jacinta C., Foreign Aid and Governance in Africa (December 11, 2014). International Review of Applied Economics, 30(1), pp. 69-88 (September, 2016 Forthcoming). Available at SSRN: https://ssrn.com/abstract=2571786 or http://dx.doi.org/10.2139/ssrn.2571786

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Jacinta C. Nwachukwu

University of Huddersfield - Business School ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
128
Abstract Views
737
rank
232,758
PlumX Metrics