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Does Aid Unpredictability Weaken Governance? Evidence from Developing Countries

Authors


  • We thank Patrick Guillaumont and Philippe Dulbecco for their guidance, and the participants of the CSAE 2011 anniversary conference in Oxford for their helpful comments and suggestions.

Abstract

This paper examines the effects of aid on governance from a different perspective by asserting that aid unpredictability can potentially increase corruption in recipient countries by providing incentives to risk-averse and corrupt political leaders to engage in rent-seeking activities. Analyses of data from 80 developing countries over the period 1984–2004 offer evidence that higher aid unpredictability is associated with more corruption as measured by a synthetic index. We also find further evidence that this latter impact is more severe in countries with weak initial institutional conditions. These findings are a supplementary advocacy for the need for better management and better predictability of aid flow in developing countries.

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