Working Paper: CEPR ID: DP14481
Authors: Jrgen Juel Andersen; Niels Johannesen; Bob Rijkers
Abstract: Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters and financial crises, and are robust to instrumenting with predetermined aid commitments. The implied leakage rate is around 7.5\% at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries.
Keywords: foreign aid; corruption; offshore financial centers
JEL Codes: D73; F35; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher levels of corruption (D73) | More pronounced aid capture (F35) |
| Aid disbursements (F35) | Bank deposits in offshore financial centers (F65) |
| Aid disbursements (F35) | Bank deposits in havens (F65) |
| Aid disbursements (F35) | No increase in bank deposits in non-havens (E49) |
| Aid disbursements (F35) | Elite capture of foreign aid (F35) |