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.