@workingpaper{Asongu2015be,
title = {Foreign aid instability and bundled governance dynamics in Africa},
author = {Jacinta Nwachukwu C Simplice A. Asongu},
editor = {African 2015 Governance and Development Institute WP/15/058},
url = {http://www.afridev.org/RePEc/agd/agd-wpaper/Foreign-aid-instability-and-bundled-governance-dynamics.pdf},
year = {2015},
date = {2015-12-01},
abstract = {Purpose- With the recent financial crisis and reduction of foreign aid by donor countries, the aidinstitutions
debate is shifting to how aid instability affects governance in developing countries.
We engage the policy debate by assessing the role of foreign aid instability on governance
dynamics in fifty three African countries for the period 1996-2010.
Design/methodology/approach- An autoregressive endogeneity-robust Generalized Methods of
Moments is employed. Instabilities are measured in terms of standard errors and standard
deviations. Three main aid indicators are used, namely: total aid, aid from multilateral donors and
bilateral aid. Principal Component Analysis is used to bundle governance indicators, namely:
political governance (voice & accountability and political stability/non violence), economic
governance (regulation quality and government effectiveness), institutional governance (rule of
law and corruption-control) and general governance (political, economic and institutional
governance).
Findings- Our findings show that foreign aid instability increases governance standards,
especially political and general governance.
Practical implications- In the presence of foreign aid instability, governments could be
constrained to improve governance standards in exchange for, or anticipation of greater
dependence on local tax revenues. Moreover, bundling governance indicators improves insights
into how macroeconomic variables affect governance. This is essentially because, while aid
instability improves general governance, for the most part it is not consistently for economic and
institutional governance.
Originality/value- The paper has contributed to the aid-institutions’ literature by examining how
aid instabilities affect an aggregate index of governance dynamics in Africa.},
keywords = {Instability; Foreign aid; Governance; Development; Africa},
pubstate = {published},
tppubtype = {workingpaper}
}