Corruption and Bilateral Aid

Abstract

Corruption in developing states reduces the effectiveness of foreign aid that is allocated to them, because government officials in corrupt countries use this money for private rather than public purposes. Despite this, existing studies do not find different aid policies from donor governments toward corrupt and less corrupt recipients. However, most of these studies have not taken account of variation among donor states. This is an important omission, because donor states behave differently. This article argues that the responsiveness of donor states to corruption in recipient states depends on their own level of corruption: less corrupt donor states allocate more aid to less corrupt recipient states than to corrupt recipients, whereas corrupt donor states do not make such a clear distinction. This proposition is tested by both pooled ordinary least squares and fixed effects estimations. The data support the argument that corruption levels in donor states determine their reaction to corruption in recipient states.