DP14481 Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts

Author(s): Niels Johannesen, Jørgen Juel Andersen, Bob Rijkers
Publication Date: March 2020
Keyword(s): Corruption, foreign aid, Offshore Financial Centers
Programme Areas: Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14481

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.