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Why corrupt governments may receive more foreign aid

David de la Croix () and Clara Delavallade ()

No 2009065, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we argue that if the cross-country heterogeneity in productivity is more important than the heterogeneity in government quality, it can be optimal to give more foreign aid to more corrupt countries. We build a multi-country model of optimal aid in which we disentangle the correlation between aid and equilibrium corruption into two components: the first one reflects variations in the quality of institutions and the second encompasses variations in productivity levels. The data suggest that both components of the correlation are significant, however the effect of variations in productivity levels is stronger. This implies that most corrupt countries, since they are also the poorest, receive higher amounts of foreign aid.

Keywords: corruption; aid; government spending; institutions (search for similar items in EconPapers)
JEL-codes: O19 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2009-10-01
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http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2009_65web.pdf (application/pdf)

Related works:
Journal Article: Why corrupt governments may receive more foreign aid (2014) Downloads
Working Paper: Why Corrupt Governments May Receive More Foreign Aid (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2009065

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