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Elite Capture of Foreign Aid By James Reed

     This is interesting, from Michael Smith News, quoting a Work Bank report that found that 7.5 percent of aid goes into foreign bank accounts:
  http://documents.worldbank.org/curated/en/493201582052636710/Elite-Capture-of-Foreign-Aid-Evidence-from-Offshore-Bank-Accounts
  https://www.michaelsmithnews.com/2020/02/we-ask-dfat-for-comment-on-world-bank-finding-that-75-of-aid-goes-into-secret-private-accounts.html

Elite Capture of Foreign Aid Evidence from Offshore Bank Accounts Jørgen Juel Andersen Niels Johannesen Bob Rijkers  Policy Research Working Paper 9150
“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 percent 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. … We document that aid disbursements to the most aid-dependent countries coincide with significant increases in deposits held in offshore financial centers known for bank secrecy and private wealth management. Aid capture by ruling politicians, bureaucrats and their cronies is consistent with the totality of observed patterns: it can explain why aid does not trigger flows to non-havens, why the capital outflows occur precisely in the same quarter as the aid inflows and why the estimated effects are larger for more corrupt countries. Other explanations are possible but we find them harder to reconcile with all the patterns in the data. We cannot exclude that firms benefiting from aid-sponsored spending receive payments in quarters with aid disbursements and deposit the funds with foreign banks; however, this mechanism cannot explain why the money only flows to havens. It seems even less likely that the results reflect profit shifting by multinational firms, the effect of aid on income through aggregate demand and portfolio adjustments by commercial and central banks. Our estimates suggest a leakage rate of around 7.5% for the average highly aid-dependent country.”

     I have been asked to comment on this. Well, short of being paid a big salary to hire researchers and recheck the data, it looks true to me. So, what does it mean? Why, someone is tickling the till, I think. Anyway, down with foreign aid; charity starts at home and we all should have had a gutful of globalist morality such as this. That is my short and sweet response, the logic of a simple soul.

 

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Sunday, 31 May 2020
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