Foreign Aid, Instability and Governance in Africa

Abstract

This study contributes to the attendant literature by bundling governance dynamics and focusing on foreign aid instability instead of foreign aid. We assess the role of foreign aid instability on governance dynamics in fifty three African countries for the period 1996-2010. An autoregressive endogeneity-robust Generalized Method of Moments is employed. Instabilities are measured in terms of variance of the 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/no violence), economic governance (regulation quality and government effectiveness), institutional governance (rule of law and corruption-control) and general governance (political, economic and institutional governance). Our findings show that foreign aid instability increases governance standards, especially political and general governance. Policy implications are discussed. JEL Classification: C53; F35; F47; O11; O55

Drivers and Persistence of Death in Conflicts: Global Evidence

“…Even in the event of political instability and terror, high-income countries have the financial resources to dampen unfavorable political externalities such as loss of human life (Asongu et al 2020b; Gaibulloev and Sandler 2009). This aligns with the premise that high-income countries are associated with better institutions with which to mitigate risks that, inter alia , are linked to deaths from civil wars and political strife (Anyanwu and Erhijakpor 2014; Asongu 2012; Asongu and Nnanna 2019b; Efobi 2015; Pelizzo and Nwokora 2016, 2018; Pelizzo et al 2016). Note that the argument of income levels and regions can be valid in respect of employing them as fundamental characteristics of comparative development because (1) in regions that mostly consist of high-income nations, not all corresponding countries are high-income nations; and (2) in regions that consist of mostly countries with low incomes, some higher-income countries are also apparent.…”

Not all that glitters is gold: Political stability and trade in Sub-Saharan Africa

“…Narrowing the outcome to trade, Alesina et al (1996) and Asongu and Nnanna (2019) argue that political instability is associated with uncertainty about policies and hence provides less incentives for investors to engage in investments that facilitate economic activities and international trade. This is also because economic agents have been documented to prefer more stable macroeconomic environments (Kelsey & le Roux, 2017.…”

Finance, Institutions, and Private Investment in Africa

“…It is also important to clarify that the categorization of the governance indicators into three main categories is motivated by two main factors: (1) it is the classification of the WGI of the World Bank; and (2) the classification has been used in contemporary governance literature (Ajide and Raheem 2016b, 2016b; Asongu and Nnanna 2019; Asongu and Odhiambo 2019b). Hence, while the attendant governance indicators have been criticized in the governance literature (Desbordes and Koop 2016), they are—to the best of our knowledge—the most widely used because of their availability.…”