Blog Post

Fighting corruption through performance-based aid

Authors

  • Axel Dreher
  • Peter Nunnenkamp
  • Hannes Öhler
Publication Date

Little appears to have changed in foreign aid business since former World Bank President Wolfensohn highlighted corruption as a major impediment to effective aid and economic development in 1996. We argue that performance-based aid provides a promising alternative to the failed traditional approach whereby donors make aid conditional on reform promises of recipients. However, uncertainty about the timeliness and amount of aid rewards must be avoided for incentive effects to persist. Broken promises on the part of donors may undermine the sustainability of reforms, similar to insufficient stamina on the part of recipients.

Info

JEL Classification
O17, F35

Key Words

  • corruption
  • foreign aid
  • Millennium Challenge Corporation