Does Foreign Aid Corrupt? A Theoretical Note

Part of the India Studies in Business and Economics book series (ISBE)


Based on a model in which redistributive politics determines the allocation of foreign aid under different heads of expenditure and the extent of corruption, the chapter shows, under certain conditions, that the result that more foreign aid raises the extent of corruption in a poorer country and promotes honesty in a richer country as derived earlier in Marjit and Mukherjee (2007) is robust also for economies where the corruption proceeds leak out of the country. Thereby, it attempts to explain the conflicting empirical findings in the literature that we obtain on the direction in which the aid influences the level of corruption in the large number of developing countries, where leakage is a reality. The result also may help us to understand the pattern of corruption and income divergence that emerges among different states in a federal democracy like India, where the states receive untied grants from the central government and fight elections at the state level.


Gross Domestic Product Rich Country Marginal Benefit Income Divergence Recipient Country 
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Copyright information

© Springer India 2016

Authors and Affiliations

  1. 1.Centre for Studies in Social SciencesKolkataIndia
  2. 2.Department of EconomicsJadavpur UniversityKolkataIndia

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