SOUNDING BOARD is an outlet for opinions on good and crazy things going on at home (wherever I may be). All are welcome. You are not expected to bring anything except your common sense & sense of humor.
'If the automobile had followed the same development cycle as the computer, a Rolls-Royce would today cost $100, get one million miles to the gallon, and explode once a year, killing everyone inside.'
-Robert X. Cringely (from geek wisdom)
SOUNDING BOARD
Wednesday, April 02, 2003
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Do corrupt governments receive less foreign aid?
Alberto Alesina (Harvard University) and Beatrice Weder (University of Basel) came up with Working Paper 7108 entitled "Do Corrupt Governments Receive Less Foreign Aid" under the National Bureau of Economic Research Working Paper Series which was subsequently published in the September 2002 issue of the American Economic Review. It was also featured in Mark
Thornton's 19 November 2002 article in the Mises.org.
A loud NO. That's the answer of the Alberto Alesina and Beatrice Weder. Basing their analysis on international economic statistics and surveys on corruption across countries, the authors find that there is no evidence that indeed less corrupt governments receive more foreign aid.
Let's probe deeper.
Off the cuff, one may challenge the authors' findings by saying that more corrupt countries receive more aid because donors may be trying to help them improve governance. In fact, the authors recognize that measures of corruption are highly correlated to other characteristics of countries (e.g., poverty and poor institutional development), which may be targeted by donors. When matched with the rhetoric (of donors) that aid works best when "allocated in an environment where there are good policies and good institutions in place..." (see page 4 of press briefing on Assessing Aid: What Works, What Doesn't, and Why), the authors, however, find it hard to argue that foreign aid should go to more corrupt countries to reduce corruption. But when they controlled for several other determinants of aid (correlated to corruption), they find a surprising result: more corrupt governments receive more foreign aid than less corrupt ones.
The next step is to ask the nasty question: why do more corrupt governments receive more foreign aid than less corrupt ones (even after controlling for other determinants of aid)? Although evidences are not so clear cut (and the authors even admitted this), one may think that donors may not have been paying critical attention to the soundness of governance in aid-receiving countries. Of course, the paper was done in 1999. Multilateral and bilateral donors may have already made strides in concretizing the rhetoric that aid works best in an environment with good policies and good institutions in place. Or am I just being naive?
posted by Allan at 5:35 PM (GMT+8)
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