Are we wasting our Tax Money on Corrupt Contries?

Over the past decades, no consensus has been found on the effectiveness of foreign aid: does foreign aid spur economic growth? This thesis investigates the effectiveness of foreign aid in 44 Sub-­‐ Saharan countries in a time period from 1998 up to and including 2011, using a fixed effect least square regression model. An interaction term between foreign aid and the recipient country’s degree of corruption, measured by the Corruption Perceived Index, is added to the regression to measure its influence on the effectiveness of aid. The investment output ratio is added to the regression as well, to measure the effect of aid on economic growth through investment in capital. This thesis neither finds evidence for any influence of foreign aid on economic growth, for the influence of corruption on the effectiveness of foreign aid, nor for the existence of diminishing returns on foreign aid. Also, it does not provide evidence for the influence of foreign aid on economic growth through investment in capital.