Understanding the Link Between Aid and Corruption: A Causality Analysis
Audrey Menard  1@  
1 : Université Strasbourg - Faculté des sciences économiques et de gestion  (FSEG)  -  Website
université de Strasbourg
Pôle Européen de Gestion et d'Économie - 61, avenue de la Forêt Noire - 67085 Strasbourg cedex -  France

This paper addresses the causal link between aid and corruption. While the relation between aid and corruption has been widely studied, no work has ever investigated the causality between both dimensions. We perform Granger-causality tests in a dynamic GMM panel framework to evaluate the sign and direction of causality between aid and corruption on a dataset of 71 developing countries over the period 1996-2009. We find no significant relation between aid and corruption running in both directions. These findings support the view that aid does not influence corruption in its current design, while corruption level does not influence incentives of donor countries to allocate aid.