Foreign Aid in the Presence of Corruption: Differential Games among Donors

Murray Kemp and Ngo Long

Review of International Economics, 2009, vol. 17, issue 2, 230-243

Abstract: We consider two dynamic games of foreign aid. Model 1 deals with the case where donor countries continually feel the warm glow from the act of giving. Model 2 postulates that donors will stop giving aid when a target level of development is reached. In Model 1, there are multiple equilibria that can be Pareto ranked. In Model 2, the equilibrium strategies are nonlinear functions of the level of development. The flow of aid falls at a faster and faster rate as the target is approached. An increase in corruption will increase the flow of aid.

Date: 2009
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