Foreign Aid and Domestic Governance: Evidence for ASEAN Countries
The impact of official development assistance (ODA) on domestic governance in recipient ASEAN countries is empirically tested on a panel data set over 1996-2015, by using the Hausman-Taylor technique which effectively deals with possible endogeneity issues. The data were from the World Bank’s World Development Indicators and from the Organization of Economic Cooperation and Development (OECD) database. Some important diagnostic tests were carried out. It was found that higher ODA levels are associated with improved corruption control and that a high level of democracy practices promotes the rule of law and better corruption control. Foreign direct investment is crucial in the improvements of governance quality and countries with “British legal origin” maintain higher governance quality. Some implications for the improvements of domestic governance, particularly related to corruption control, for the ASEAN countries and other transitional and developing economies are listed.