Aid, Institutions, and the Potential of Anti-Corruption

Presented at the Midwest Political Science Association (MPSA) conference, 2022.

Does anti-corruption improve aid effectiveness? I use insights from principal-agent theory, incomplete contracting, and historical institutionalism to argue that anti-corruption improves aid effectiveness for two main reasons. First, anti-corruption measures generally target institutional constraints, which a large literature suggests are the primary cause of development outcomes. Second, during the critical juncture period in the late 1990s, legitimacy challenges from civil society spurred aid agencies to change how they approached corruption. In turn, aid agencies created large anti-corruption infrastructures and approached corruption risks on a more context-specific basis, enabling anti-corruption measures to have both the power and specificity to meaningfully contribute to aid effectiveness. To test the hypothesis, I individually coded all 3,663 World Bank investment projects approved from 2001-2016 for their use of context-specific, project-level Governance and Anti-Corruption Action Plans (GAAPs). Using frontier matching for causal inference, I find that projects with GAAPs have better project outcomes than similar projects without GAAPs. The results suggest that principal-agent style monitoring remains useful, and weak institutions also do not automatically yield poor development outcomes. [Draft Paper]