Aid and Governance: Negative Returns?

Recent literature has come to little consensus on the impact of aid flows on governance in recipient countries. This article adds to the debate by developing a theoretical and empirical argument to help resolve the contradictory claims. The article suggests that the aid-governance relationship need not be linear, but rather, that aid may simultaneously improve and hinder governance. This relationship might be akin to an aid-governance 'aid dependence' Laffer curve wherein 'too much' aid can lead to counter-productive results. Inserting non-linear aid terms in established techniques for examining aid and governance reveals significant support for the potential of negative returns in aid and governance.