THE IMPACT OF FOREIGN AID ON THE QUALITY OF GOVERNANCE: EVIDENCE FROM SUB-SAHARAN AFRICA

Abstract

Purpose – This paper examines how foreign aid affects the quality of governance in Sub-Saharan Africa. Previous theories put forth in this area offer conflicting guidance and prior empirical findings are often contradictory and inconclusive. This paper attempts to reconcile these divergent theories by shedding fresh insight into the aid and governance relationship.

Design/methodology/approach – The empirical analysis is conducted using pooled OLS, two-stage least-squares, the random-effects model, and the fixed-effects model on a panel of 30 Sub-Saharan African countries for a period of 21 years starting from 1996-2016.

Findings – The results indicate that aid has a positive and statistically significant impact on the quality of governance. This positive association can be attributed to donors targeting aid towards countries with improving governance, and the small coefficient on aid suggests that external actors have little or no significant influence on the country's political system. Subsequently, this study also finds that aid affects the dimension used to measure control of corruption the most and that receiving aid decreases corruption.

Originality/value – In light of numerous recent research in the aid-governance literature, this study broadens the discussion on foreign aid and governance in Sub-Saharan Africa.