Aid Dependence and Quality of Governance
Aid Dependence and Quality of Governance
Global Evidence and the Case of Cambodia
This chapter examines whether foreign aid worsens governance by focusing on the case of Cambodia. It first considers the relationship between foreign aid and governance in more than 200 countries and territories before discussing the governance consequences of Cambodia’s aid dependence since 1993. It shows that aid dependence worsens governance only to a limited degree, and only with respect to rule of law. Findings suggest that aid can play a positive role when the effects of its components are taken into account and that the causal relation between aid dependence and worsening quality of governance may be tenuous at best and sensitive to alternative specifications—that is, the results can change depending on what model is used. In the case of Cambodia, aid does not lead to economic growth and distorts incentives for good governance, influences government spending, and weakens taxation and accountability. There has been a trade-off of voice and accountability, and indeed democracy, for stability.
Keywords: foreign aid, governance, Cambodia, aid dependence, economic growth, government spending, taxation, accountability, democracy
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