Aid Dependence and the Quality of Governance : A Cross-Country Empirical Analysis
Good governance -- in the form of institutions that establish predictable, impartial, and consistently enforced rules for investors -- is crucial for the sustained and rapid growth of per capita incomes in poor countries. Aid dependence can undermi...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/07/443625/aid-dependence-quality-governance-cross-country-empirical-analysis http://hdl.handle.net/10986/19826 |
| Summary: | Good governance -- in the form of
institutions that establish predictable, impartial, and
consistently enforced rules for investors -- is crucial for
the sustained and rapid growth of per capita incomes in poor
countries. Aid dependence can undermine institutional
quality by weakening accountability, encouraging rent
seeking and corruption, fomenting conflict over control of
aid funds, siphoning off scarce talent from the bureaucracy,
and alleviating pressures to reform inefficient policies and
institutions. The author's analyses of cross-country
data provide evidence that higher aid levels erode the
quality of governance, as measured by indexes of
bureaucratic quality, corruption, and the rule of law. This
negative relationship strengthens when instruments for aid
are used to correct for potential reverse causality. It is
robust to changes in the sample and to several alternative
forms of estimation. Recent studies have concluded that
aid's impact on economic growth and infant mortality is
conditional on policy and institutional gaps. The
author's results indicate that the size of the
institutional gap itself increases with aid levels. |
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