Foreign Aid and Corruption

Abstract

The history of foreign aid has been inextricably linked with corruption. Since the inception of the International Development Association (IDA) in 1960, a large body of writings has emerged on the corrosive effect of corruption that undermines the effectiveness of foreign aid. To improve the development impact of foreign aid, the international development community has taken a firm stance against corruption. This essay begins with a brief discussion of the definition, type and measurement of corruption; it argues that given the underlying conceptual and data issues, there is no index of corruption that can meaningfully capture all its multifarious dimensions into a single number. This, in turn, renders the task of measuring inter-temporal variations of corruption in a country virtually impossible. This section is followed by a review of various anti-corruption measures recently implemented by donors and recipient countries to combat corruption. This review suggests that these measures have had a substantial impact on combating corruption in aid-recipient countries. This success notwithstanding, the recent intensive campaign against corruption appears to have reached a point of diminishing returns in terms of its impact on aid effectiveness. The final section argues that combating corruption is not an end in itself; it is a means to an end (i.e., attaining aid effectiveness). The current strategy of combating corruption emphasizes establishing new departments, implementing new procedures, and strengthening prosecution; it has little direct bearing on the results foreign aid seeks to achieve, such as inclusive growth, efficient service delivery or environmental sustainability. The strategy of combating corruption should, therefore, be subsumed under the strategy of aid effectiveness for maximum development impact.