Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123640
Authors: 
Asongu, Simplice A.
Nwachukwu, Jacinta C.
Year of Publication: 
2014
Series/Report no.: 
AGDI Working Paper WP/14/034
Abstract: 
Purpose – This paper investigates the effect of foreign aid on governance in order to extend the debates on foreign aid and to verify common positions from Moyo's 'Dead Aid', Collier's 'Bottom Billion' and Eubank's 'Somaliland'. The empirical evidence is based on updated data from 52 African countries for the period 1996-2010. Design/methodology/approach – An endogeneity robust instrumental variable Two-Stage-Least Squares empirical strategy is employed. Findings – The findings reveal that development assistance deteriorates economic (regulation quality and government effectiveness) and institutional (corruption-control and rule of law) governance, but has an insignificant effect on political (political stability, voice and accountability) governance. While, these findings are broadly in accordance with Moyo (2009) and Collier (2007) on weak governance, they neither confirm the Eubank (2012) position on political governance nor the Asongu (2012) stance on the aid-corruption nexus in his debate with Okada & Samreth (2012). Practical implications – The use of foreign aid as an instrument to influence the election and replacement of political leaders in Africa may have insignificant results. It is time to solve the second tragedy of foreign aid and that economists and policy makers start rethinking the models and theories on which foreign aid is used to influence economic, institutional and political governance in recipient countries. Originality/value – The paper extends the debate on foreign aid and institutions in Africa in the light a plethora of recent studies in the aid literature.
Subjects: 
Foreign Aid
Political Economy
Development
Africa
JEL: 
B20
F35
F50
O10
O55
Document Type: 
Working Paper

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