Policy Research

The effect of foreign aid on corruption: A quantile regression approach

Keisuke Okada, Sovannroeun Samreth

Summary

The article examines foreign aid and attempts to estimate the effect that it has on level of corruption within the country receiving aid. The article estimates that increases in multi-lateral foreign aid to a country had significant effects at reducing that countries corruption. This reduction effect was also found to be strongest on countries with low starting levels of corruption. Bi-lateral foreign aid however was found to have no significant effect from any country besides Japan. The reasons for this are unclear.

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Policy Implications

This article can be used in attempting to deliver optimal foreign aid and anti-corruption outcomes. If part of the justification for foreign aid is to reduce corruption then choosing multi-lateral paths of aid appears to be the best method. Additionally, if the receiving country had high levels of governmental corruption that alternative corruption reducing devices may be preferred.