Foreign Aid and Rent-Seeking: Case of CIS Region

Abstract

The stated goal of foreign aid is to promote economic development, accompanied with good governance and low level of corruption. However, the ability of foreign aid to fulfil this purpose is doubtful. These doubts are partly based on the possible phenomenon of rent-seeking, which role as a challenge for aid’s effective use is investigating in many conceptual and empirical researches. This work is assigned to explore the link between foreign aid and rent-seeking, reflecting in increased level of corruption, in CIS region during the period between 2002 and 2012. In order to conduct such analysis, econometric model with instrumental variables application was established. The obtained results unveiled the significant role of foreign aid as a provoker of corruption in the selected countries. This fact ascertains the necessity of the reforms in the mechanisms of foreign aid’s distribution, use, and subsequent control.