Foreign Aid and Corruption: Do Women Make the Difference?

Abstract

The longstanding debate on the effectiveness of foreign aid has largely concluded that corruption is one of the major reasons for the failure of aid to sustain development in recipient countries. This paper investigates whether greater involvement of women in recipient countries' political and economic life enhances the effectiveness of foreign aid by reducing the corruption that usually accompanies massive foreign aid. The hypothesis is tested by cross-country empirical analysis, addressing the potential endogeneity of aid and women’s participation using an IV approach. We provide robust and causal evidence that greater women’s political and labor market participation does reduce the corruption associated with foreign aid, especially when the aid targets sectors that enhance women’s well-being. Moreover, we find that while all the dimensions of women's social participation are effective in reducing corruption, the greatest effect derives from the political dimension.