Knack, Stephen2014-08-282014-08-282000-07https://hdl.handle.net/10986/19826Good governance -- in the form of institutions that establish predictable, impartial, and consistently enforced rules for investors -- is crucial for the sustained and rapid growth of per capita incomes in poor countries. Aid dependence can undermine institutional quality by weakening accountability, encouraging rent seeking and corruption, fomenting conflict over control of aid funds, siphoning off scarce talent from the bureaucracy, and alleviating pressures to reform inefficient policies and institutions. The author's analyses of cross-country data provide evidence that higher aid levels erode the quality of governance, as measured by indexes of bureaucratic quality, corruption, and the rule of law. This negative relationship strengthens when instruments for aid are used to correct for potential reverse causality. It is robust to changes in the sample and to several alternative forms of estimation. Recent studies have concluded that aid's impact on economic growth and infant mortality is conditional on policy and institutional gaps. The author's results indicate that the size of the institutional gap itself increases with aid levels.en-USCC BY 3.0 IGOADMINISTRATIVE CAPACITYAID DEPENDENCEAID FLOWSBINDING CONSTRAINTBUDGETARY SUPPORTBUREAUCRACYBUREAUCRATIC EFFICIENCYBUREAUCRATIC QUALITYCITIZENCITIZEN PARTICIPATIONCIVIL SERVICECIVIL SOCIETYCOMMUNISTCOMPETITION POLICYCORRUPT PRACTICESCORRUPTIONCORRUPTION IN GOVERNMENTCORRUPTION INDICATORCORRUPTION LEVELSCOUNTRY DATACOUNTRY RISK GUIDECURRENT ACCOUNTDEMOCRACYDEVELOPMENT ASSISTANCEDEVELOPMENT ISSUESDEVELOPMENT RESEARCHECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC PERFORMANCEEXCHANGE OF IDEASEXPENDITUREEXPORTSFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL MANAGEMENTFISCALFOOD AIDFOREIGN AIDFOREIGN ASSISTANCEFOREIGN DEBTFREE PRESSGAPSGOOD GOVERNANCEGOVERNANCE INDEXGOVERNANCE INDICATORSGOVERNANCE VARIABLESGOVERNMENT BUDGETSGOVERNMENT EXPENDITURESGOVERNMENT OFFICIALSGOVERNMENT RESOURCESGOVERNMENT REVENUESGOVERNMENT SPENDINGGOVERNMENTAL ACCOUNTABILITYGROWTH REGRESSIONIMPORTSINCIDENCE OF CORRUPTIONINCOMEINCOME GROWTHINCOME LEVELSINFANT MORTALITYINSTITUTIONAL CAPACITYINSTITUTIONAL MEASURESINSTITUTIONAL QUALITYINTERNATIONAL DEVELOPMENTINVESTMENT CLIMATEJUDICIAL REFORMLEGAL SYSTEMLEGAL SYSTEMSLOBBYINGLOCAL GOVERNMENTSLOCAL INSTITUTIONSNATIONAL INCOMENATIONSNATURAL RESOURCESPARASTATALSPARLIAMENTPER CAPITA INCOMEPER CAPITA INCOMESPOLICY IMPLICATIONSPOLICY RESEARCHPOLITICAL CONFLICTPOLITICAL INFLUENCEPOLITICAL INSTABILITYPOLITICAL RISKSPROPERTY RIGHTSPUBLIC EMPLOYEESPUBLIC FUNDSPUBLIC OFFICIALSPUBLIC SECTORPUBLIC SECTOR ACCOUNTABILITYPUBLIC SECTORSPUBLIC SPENDINGPUBLIC-SECTORPUBLIC-SECTOR EMPLOYMENTQUALITY OF GOVERNANCEREVERSE CAUSALITYREVOLUTIONRULE OF LAWSOCIAL CAPITALSOCIAL GROUPSSTATE-OWNED ENTERPRISESTARGETINGTAX COLLECTIONSTAX REDUCTIONTAX REVENUESTECHNICAL ASSISTANCETRANSPARENT PROCEDURESWORLD DEVELOPMENT INDICATORS10.1596/1813-9450-2396