Governance and Foreign Aid in ASIAN Countries

Abstract

This paper examines the determinants of flow of foreign aid in the 20 ASIAN countries in a panel framework. The model includes the foreign aid, foreign direct investment, six measures of governance, along with the purely economic variables which have been taken as control variables. Estimation analysis was carried out by using pooled annual time series data from 2002 to 2008 in the framework of fixed and random effect model. Relevance of GMM (1991) and GMM (1998) estimates were also evaluated. We find that there is strong evidence of significantly positive impact of past year's aid flow and regulatory quality on the current year's aid flow while significantly negative impact of exports of goods and services, political stability and control over corruption on the current year's aid flow, weak evidence of the negative impact of population, voice and accountability, and rule of law on the current year's aid flow and weak evidence of significantly positive impact of government effectiveness on the current year's aid flow.

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