Institutional benchmarking of foreign aid effectiveness in Africa

Abstract

Purpose – The purpose of this paper is to integrate two main strands of the aid-development nexus in assessing whether institutional thresholds matter in the effectiveness of foreign-aid on institutional development in 53 African countries over the period 1996-2010. Design/methodology/approach – The panel quantile regression technique enables us to investigate if the relationship between institutional dynamics and development assistance differs throughout the distributions of institutional dynamics. Eight government quality indicators are employed: rule of law, regulation quality, government effectiveness, corruption, voice and accountability, control of corruption, political stability and democracy. Findings – Three hypotheses are tested and the following findings are established: first, institutional benefits of foreign-aid are contingent on existing institutional levels in Africa; second, but for a thin exception (democracy), foreign-aid is more negatively correlated with countries of higher institutional quality than with those of lower quality; third, the institutional benefits of foreign-aid are not questionable until greater domestic institutional development has taken place. The reverse is true instead. government quality benefits of development assistance are questionable in African countries irrespective of prevailing institutional quality levels. Originality/value – This paper contributes to existing literature on the effectiveness of foreign-aid by focussing on the distribution of the dependent variables (institutional dynamics). It is likely that best and worst countries in terms of institutions respond differently to development assistance.