The Evolving Debate on the Effect of Foreign Aid on Corruption and Institutions in Africa

Abstract

This policy chapter summarises an evolving debate on the effect of foreign aid on corruption and institutions. It entails a series of publications that have been successively motivated by feedbacks from academic and policy making circles. The plethora of papers explores debates sustaining the direct, conditional and indirect effects of foreign aid on institutions. Moreover, another debate on the incidence of foreign aid distortions on corruption is also assessed in light of a recently celebrated literature on development assistance. Overall, the findings show that the effects of foreign aid on corruption and institutions are: directly positive; conditionally positive with a magnitude dependent on initial institutional capacity levels; contingent on fundamental characteristics of development due to heterogeneity and; indirectly positive or negative depending on the transmission mechanism. While the impact of foreign aid uncertainty on corruption is also positive, the sign on governance could change in light of governments’ commitment to increase its dependence on local tax revenues.