The Impact of Official Development Assistance on Government Effectiveness: The Mediating Effect of Corruption*

The impact of ODA on governance is still a contentious issue of debate. A few number of East Asian countries, such as Korea and Singapore, have achieved rapid economic and social development by government-led development strategy. This study focuses on the role of government to achieve developmental goals, and explores the relationship between aid dependence on government expense and government effectiveness from the perspective of government competitiveness and the mediating effect of corruption as well. The analysis draws upon a data set of 82 developing countries over the period 2004-2013. The findings of the study illustrates that dependence on ODA in government expenditure reduces government effectiveness in developing countries. In addition, ODA funds from donors have an adverse effect on the control of corruption, and it, in the end, impedes government effectiveness. To increase aid effectiveness in promoting growth and development, governments of developing countries need to improve their government competitiveness.