| This study examines the effect of foreign aid on economic growth and corruption in developing countries. Using panel data from 67 countries from 1986-2005, in two fixed effect models, the study finds that, after controlling for other factors, aid has no positive effect on economic growth. However, it finds that aid is positively related to corruption. That is, the more aid a country gets the better the corruption ranking of the country is. These findings suggest two lessons for policymakers. First, aid should not be used in expectation of increasing economic growth of recipient countries. Second, aid may be effective in improving the quality of governance in these countries. |
