The causal relationships among corruption, political instability, economic development and foreign aid: Evidence from the economic community of West African states

Although the determinants and impacts of economic development, corruption, political instability and aid have been investigated, little has been done to examine the causal relationships among them. This paper investigates the causal relationships among economic development, corruption, political instability and aid in the Economic Community of West African States (ECOWAS) from 1999 to 2012, using several techniques that include the granger causality test within a multivariate cointegration and error-correction framework, and forecast error variance decomposition and impulse response function analyses.The results of the analyses indicate there is a short-run positive unidirectional causality from political instability to aid and a negative unidirectional causality from political instability to economic development; a long-run positive unidirectional causality from political instability to corruption and a negative unidirectional causality from political instability to economic development; a long-run positive unidirectional causality from aid to corruption and a negative unidirectional causality from aid to economic development; including a long run positive bidirectional causality between economic development and corruption in ECOWAS countries.Thus, policies that promote political stability would foster economic development, lower corruption and reduce the reliance on aid; policies that lessen the reliance on aid would reduce corruption and promote economic development; and policies that reduce corruption would enhance economic development which in turn leads to lower corruption in the long-run in the region