Working Paper BETA #2012-18

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Title : Do natural resources condition the aidgovernance relationship? Evidence from Africa.

Author(s) : Audrey Menard

Abstract : This paper offers some evidence on why the governance effect of foreign aid is shadowy in African countries. The evidence suggests that the aid-governance linkages can be robust if the type of aid is differentiated between bilateral and multilateral aid and if the governance effect of aid is conditioned on the size of natural resources rents. A dynamic panel data analysis over the period 1997 – 2008 reveals that (i) foreign aid improves governance if and only if aid is allocated by multilateral agencies; and (ii) the effect of multilateral aid is the stronger the less the recipient country is dependent on natural resources, in particular on oil resources. The combination of multilateral aid and oil rents independence favour the development of good governance in Africa.

Key-words : Governance, Natural resources, Oil, Multilateral aid.

JEL Classification : F35, D73, Q30, O11, C33.