The relationship between foreign aid and corruption: a case of selected Asian countries
| DOI | https://doi.org/10.1108/JFC-08-2018-0089 |
| Published date | 02 July 2019 |
| Date | 02 July 2019 |
| Pages | 692-704 |
| Author | Muhammad Ali,Lubna Khan,Amna Sohail,Chin Hong Puah |
The relationship between foreign
aid and corruption: a case of
selected Asian countries
Muhammad Ali,Lubna Khan and Amna Sohail
Department of Business Administration, Iqra University, Karachi, Pakistan, and
Chin Hong Puah
Department of Economics and Business, Universiti Malaysia Sarawak,
Kota Samarahan, Malaysia
Abstract
Purpose –The purpose of this study is to examine the effectof foreign aid (FA) on corruption in selected
Asian countries(Pakistan, India, Srilanka and Bangladesh) usingthe panel data from 2000 to 2014.
Design/methodology/approach –The author used Levin-Lin-Chuand Im-Pesaran-Shin panel unit root
tests to check the stationaryproperties of the variables. The Pedroni’sand Kao panel cointegration approach
was applied to analyze the variable’s long-run relationship. The author used panel dynamic ordinary least
squares (PDOLS) and fully modifiedordinary least squares (FMOLS) framework to estimate the coefficients
of cointegrating vectors. Additionally, the panel granger causality test was performed to check the causal
relationshipbetween the variables.
Findings –The results from PDOLS and FMOLS indicatethat FA has a significantnegative impact on the
level of corruption. This infers thatthe foreign assistance decrease the level of corruption perception index,
hence, morecorruption in the country.
Originality/value –Overall, the study fulfills the need to understand the aid-corruption nexus,
particularlyin the case of the Asian region.
Keywords Governance, Corruption, Aid, Foreign aid, Developing countries, Asian countries,
Democracy
Paper type Research paper
1. Introduction
Corruption is broadly defined as the misuse of official authority for personal interest
(Rodriguez et al.,2005). Corruption, as a subject, has started getting increased prominence
among the researchers and policymakers of the developingworld. This has gain significant
attention of researchers to investigate the effects of corruption on development and the
efficacy of official development assistance(ODA) as a tool of refining governance quality. It
is also point worth noting that foreign aid (FA) recipient countries fails to promote more
developmentand infrastructure due to poor governanceof fund, which, in turn, reducing the
amount of aid (International Monetary Fund, 2005). Similarly, the (World Bank, 2006) has
also formulated the governance indicators covering various variables to measure
institutional quality by using about 350 indicators extracted from a number of institutions
worldwide.
According to José Ugaz,Chair of Transparency International (TI):
In too many countries, people are deprived of their most basic needs and go to bed hungry every
night because of corruption, while the powerful and corrupt enjoy lavish lifestyles with liberty.
JFC
26,3
692
Journalof Financial Crime
Vol.26 No. 3, 2019
pp. 692-704
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-08-2018-0089
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