Foreign Aid and Corruption: Clarifying Murky Empirical Conclusions

Published date01 August 2019
Date01 August 2019
DOI10.1177/0015732519851633
Foreign Aid and
Corruption: Clarifying
Murky Empirical
Conclusions
Uchenna Efobi1
Ibukun Beecroft2
Simplice Asongu3
Abstract
This study considers foreign aid flow by sector in which the aid is directed and
then estimates its impact on corruption in order to clarify the specific direction of
aid flow that triggers (or does not trigger) corrupt practices. Data are from the
Organisation for Economic Co-operation and Development database, Freedom
House dataset, and the World Bank Governance Indicators. The dynamic system
GMM and quantile regressions (QR) were estimated for robust estimation and
correction of endogeneity issues. We found that aid flows for the development
of economic infrastructure, multi-sector and programme assistance were con-
sistently reducing corruption. This result stands for both the entire sample and
for the African countries (especially for countries at the 25th, 50th and 75th
quintiles). Aid flows to social infrastructure and debt relief significantly induce
corrupt practices in the sampled countries. These forms of aid only spur rent-
seeking behaviour for countries at the lower quintiles of corruption. Two robust
checks were estimated, including: (a) using an alternate explained variable—the
corruption measure by Transparency International; and (b) correcting for endo-
geneity in the QR estimation by instrumenting the independent variables of inter-
est with their first-lags. For both checks, the signs and significant values of the
variables were consistent with the earlier estimation.
Commentary
1 College of Business and Social Sciences, & Centre for Economic Policy and Development Research
(CEPDeR), Covenant University, Ota, Nigeria.
2 Department of Economics, & Centre for Economic Policy and Development Research (CEPDeR),
Covenant University, Ota, Nigeria.
3 Lead Economist and Director of the African Governance and Development Institute, Yaounde,
Cameroon.
Corresponding author:
Uchenna Efobi, College of Business and Social Sciences, & Centre for Economic Policy and Development
Research (CEPDeR), Covenant University, Ota, Nigeria.
E-mails: uche.efobi@covenantuniversity.edu.ng; efobi99@yahoo.co.uk
Foreign Trade Review
54(3) 253–263, 2019
© 2019 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/0015732519851633
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