Does Foreign Aid Help or Hinder the Institutional Quality of the Recipient Country? New Evidence from the OIC Countries

Mohammad Ashraful Ferdous Chowdhury, Mohamed Ariff, Mansur Masih and Izlin Ismail

Chapter 9 in Introduction to Islamic Economics and Finance, 2025, pp 175-204 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study examines the impact of foreign aid on the institutional quality (IQ) of the OIC countries. Using the data of OIC countries for the three-year average period from 1991 to 2016, the system GMM finds that aid in general deteriorates the IQ for the aid recipient countries. However, quantile regression suggests that the negative impact of foreign aid on institutional quality (IQ) is relatively greater in the countries where the existing quality of institution is poor. The findings of the study suggest that improving the existing capacity is essential for reaping the optimum benefit of foreign aid on institutional development.

Keywords: Islamic Economics; Islamic Finance; Islamic Banking; Islamic Insurance; Sustainable Finance; Ethical Finance; Fintech and Islamic Finance; Islamic Finance Regulation; Islamic Banking Market (search for similar items in EconPapers)
Date: 2025
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