Discussion Paper Details

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Title: Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts

Author(s): Niels Johannesen, Jørgen Juel Andersen and Bob Rijkers

Publication Date: March 2020

Keyword(s): Corruption, foreign aid and Offshore Financial Centers

Programme Area(s): Development Economics

Abstract: Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters and financial crises, and are robust to instrumenting with predetermined aid commitments. The implied leakage rate is around 7.5\% at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries.

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Bibliographic Reference

Johannesen, N, Juel Andersen, J and Rijkers, B. 2020. 'Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts'. London, Centre for Economic Policy Research.