Foreign Aid, Instability and Governance in Africa

Politics & Policy. 47(4), pp. 807-848 (August, 2019)

35 Pages Posted: 28 May 2019 Last revised: 13 Aug 2019

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Joseph Nnanna

Development Bank of Nigeria

Date Written: April 30, 2019

Abstract

This study contributes to the attendant literature by bundling governance dynamics and focusing on foreign aid instability instead of foreign aid. We assess the role of foreign aid instability on governance dynamics in fifty three African countries for the period 1996-2010. An autoregressive endogeneity-robust Generalized Method of Moments is employed. Instabilities are measured in terms of variance of the errors and standard deviations. Three main aid indicators are used, namely: total aid, aid from multilateral donors and bilateral aid. Principal Component Analysis is used to bundle governance indicators, namely: political governance (voice & accountability and political stability/no violence), economic governance (regulation quality and government effectiveness), institutional governance (rule of law and corruption-control) and general governance (political, economic and institutional governance). Our findings show that foreign aid instability increases governance standards, especially political and general governance. Policy implications are discussed.

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

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

Suggested Citation

Asongu, Simplice and Nnanna, Joseph, Foreign Aid, Instability and Governance in Africa (April 30, 2019). Politics & Policy. 47(4), pp. 807-848 (August, 2019). Available at SSRN: https://ssrn.com/abstract=3380449 or http://dx.doi.org/10.2139/ssrn.3380449

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Joseph Nnanna

Development Bank of Nigeria ( email )

Maitama, Abuja
Nigeria

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