Abstract
This study examines the role of institutional quality as a complementary factor on the effectiveness of sectoral allocations of foreign aid (i.e. aid to social sectors, aid to economic sectors, aid to production sectors and aid to multi sectors) on income inequality in selected foreign aid recipient countries. This study utilizes System-Generalized Method of Moment on a panel data of 50 of foreign aid recipient countries during the period 1995 to 2017. The empirical findings revealed that the interaction variables between sectoral allocations of foreign aid with institutional quality have a negative and statistically significant effect on income inequality during the period of study. This finding indicates that institutional quality is one the conditional factor for the effectiveness of sectoral foreign aid allocations in narrowing income inequality in developing countries.
Highlights
Income inequality is one of the most urgent issues, exacerbating poverty, hindering development and undermining the full spectrum of human rights
The data used in the estimation of the impact of the sectoral allocation of aid (SAA) and law and order on income inequality are utilized from a panel dataset of 49 foreign aid recipient countries for the period of 1995-2017
This study contributed to the literature on the sectoral impact allocation of foreign aid and quality of institution on income inequality
Summary
Income inequality is one of the most urgent issues, exacerbating poverty, hindering development and undermining the full spectrum of human rights. Foreign aid is one of the important tools to reduce poverty and income inequality by facilitating faster and sustained economic growth via increased saving and investment in developing countries (Harrod and Domar, 1965; Chenery and Strout, 1966; Papanek, 1973; Gulati, 1975; Roemer, 1989; Islam, 1992; Thirlwall, 1999; Sachs et al, 2005). Foreign aid provides necessary assistance to developing nations which is required to preserve their natural resources, increase equity in society and protect the environment For this reason, many economists believe that aid can be used as a tool to improve the economic performance of a country. These figures portray that the sectoral allocations of foreign aid and quality of institution (law and order) were potentially reducing income inequality in the recipient countries
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
