The Effect Of Foreign Aid On Economic Growth And Corruption In 67 Developing Countries

The tradition of giving foreign aid came into exist after the capitalism turned to monopoly from competitive one. The foreign aid giving to developing and less developed countries began to speed up after World War II. It has been broadly concerned in the international economic field whether foreign aid has played a positive role in the economic growth. The thesis studies this subject based on the influence of foreign aid on economic growth and corruption degree in developing countries.Firstly, the thesis makes a general theoretical introduction to the beginning, purpose and the present status of foreign aid, and the result and effect of aid; studies the current academic views and literatures about the relationship between foreign aid and economic growth, the relationship between foreign aid and corruption, and the relationship between economic growth and corruption; by the detailed study and comparative analysis, states the necessity of studying foreign aid's influence on economic growth and corruption.Secondly, based on the variables which are frequently mentioned and used, the thesis examines the effect of foreign aid on GDP pre capita and the relationship between corruption and foreign aid. Using panel data from 67 countries from 1986-2005, the study sets up two concept models. All the data used is from World Development Indicators by World Bank, The International Countries Risk Guide (ICRG) 2008, The CIA Factbook 2008 and literatures from Sacha and Warner (1995), Easterly, Rodriguez and Schmidt-Hebbel (1994), Barro and Lee (2000), Roeder (2001), Marchall and Jaggeres.Thirdly, through ways like logistic in economictrics, the study makes description and analysis to the data above in two fixed effect models, finds that aid is positively related to corruption, however, that does not necessarily mean that the increment of aid will lead to more corruption activities. The thesis regards conditional aid is effective in improving the quality of governance in developing countries, and meanwhile is positive to decrease the corruption ranking.There are two conclusions from this study, one is that foreign aid plays no positive role in economic development, and the other is that foreign aid does push corruption forward. Finally, the study suggests that both donor and recipient countries should play a larger role for the aid in order that it may be used efficiently and effectively. There are several major policy implications that the donors and recipients need to consider to make aid more effective in improving economic growth and quality of governance. As to strategies, donors should consider the accountability, responsibility and commitments of recipient countries. More conditional aid policies should be adopted to help recipient countries build democracy and institutional capabilities. Bad governments should be bypassed to improve the influence of foreign aid on economic growth and governance capability of recipient countries.