Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts

AbstractDoes foreign aid enable or constrain elite capture of public revenues? Reflecting on prominent debates in the foreign aid literature, we examine whether recipient preferences are consistent with a view that foreign donors wield substantial control over the flow of aid dollars, making elite capture more difficult and mass benefits more likely. We compare elite and mass support for foreign aid versus government spending on development projects through a survey experiment with behavioral outcomes. A key innovation is a parallel experiment on members of the Ugandan national parliament and a representative sample of Ugandan citizens. For two actual aid projects, we randomly assigned different funders to the projects. Significant treatment effects reveal that members of parliament support government programs over foreign aid, whereas citizens prefer aid over government. Donor control also implies that citizens should favor foreign aid more and elites less as their perceptions of government clientelism and corruption increase. We explore this and report on other alternative mechanisms. Effects for citizens and elites are most apparent for those perceiving significant government corruption, suggesting that both sets of subjects perceive significant donor control over aid.

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Aid diversion, accountability and questions unanswered: contextualising the World Bank working paper on offshore capture of foreign aid

Journal of Money Laundering Control ◽

10.1108/jmlc-08-2020-0086 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Stephen Damianos

Keyword(s):

Foreign Aid ◽

International Development ◽

World Bank ◽

Elite Capture ◽

Tax Havens ◽

Content Type ◽

Working Paper ◽

Accountability Measures ◽

The World Bank ◽

Desk Research

Purpose The purpose of this paper is to engage a contentious World Bank publication beyond its controversy. In particular, it assesses mechanisms that facilitate elite capture of foreign aid and potential strategies of accountability. Design/methodology/approach This paper adopts desk research methodology, relying primarily upon journal papers, books and internet sources related to international development and corruption. Findings This paper isolates three factors that contribute to elite capture of foreign aid: the codified secrecy of offshore tax havens, customary clientelism and decentralised aid. Regarding accountability measures, it advocates decreasing livelihood dependence on local elites and encouraging meaningful involvement by civil society. Originality/value This paper de-sensationalises the controversial World Bank working paper, providing a contextualised reading that at the time of publication does not yet exist.

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