Do Corrupt Governments Receive Less Foreign Aid?

Abstract:

Critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies. Supporters argue that foreign aid can be used to reward good governments. This paper documents that there is no evidence that less corrupt governments receive more foreign aid. This result holds for the allocation aid as well as for debt relief and it is robust across different corruption measures and for different time periods. Thus, there is no evidence that the allocation of aid or debt relief was targeted to the less corrupt countries even in recent periods. As to the dynamics of the relationship between foreign aid and corruption we find some indication that increases in aid are associated with contemporaneous increases in corruption, a result that is supportive of the so called "voracity effect".