Aid and corruption : should we be directing aid to countries with less corruption?

Doherty, Emma. (2006). Aid and corruption : should we be directing aid to countries with less corruption? Honours Thesis, School of Economics, The University of Queensland.

       
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Author Doherty, Emma.
Thesis Title Aid and corruption : should we be directing aid to countries with less corruption?
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2006
Thesis type Honours Thesis
Total pages 88
Language eng
Subjects 14 Economics
Formatted abstract The idea that aid should be directed away from countries exhibiting significant levels of corruption has gained increasing acceptance amongst the providers of overseas development assistance over the course of the last decade. The research presented in this thesis questions the validity of such shifts in lending practice and attempts to provide a detailed and critical understanding of both their theoretical foundation and empirical justification. The discussion of relevant economic theory covers both the substantial literature on the purpose and effectiveness of aid, as well as the comparatively recent literature on the causes and effects of corruption. Particular focus is placed on an examination of the pivotal article by Burnside and Dollar (2000) - research that is both the most prominent example of an attempt to empirically evaluate the relationship between aid and the quality of governance, and which has provided much of the theoretical underpinning for the shift in paradigm that has been so evident in the recent publications by the major lending institutions.

The empirical research presented in this thesis extends the basic framework of Burnside and Dollar's research to incorporate a number of modifications in order to explicitly address the validity of the claim that aid is more effective in countries with lower levels of corruption. The results of the empirical analysis show little evidence in favour of the proposition that aid is significantly more growth promoting in countries with less corruption. If anything, the results point towards the reverse conclusion; that is, aid appears to have a statistically larger positive effect on growth in countries with more pervasive corruption! A number of hypotheses are advanced in support of the results, primarily revolving around the notion that countries with poorer institutional environments offer greater possibilities for improvement. The results presented from the empirical research here should be interpreted with some degree of caution, given the variation in the aid-corruption-growth relationships found across the various models estimated. However, the research provided here should at the very least serve as a warning that further careful and rigorous research is needed before determining where large sums of development assistance should best be allocated to achieve significantly improved results in alleviating poverty and promoting sustainable economic growth.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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Created: Tue, 30 Nov 2010, 10:49:33 EST by Muhammad Noman Ali on behalf of The University of Queensland Library