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Abstract
Using data on 71 aid recipient countries over the period 2000–2019, this study examines the effect of the size and composition of foreign aid (Official Development Assistance, ODA) on economic growth. The size of ODA is positively correlated with growth, and the impact of an increase in ODA on growth decreases when ODA reaches a certain level. The influence of the composition of ODA in terms of grants and loans on growth is estimated differently depending on sample selection. The sample is divided into two sub-samples based on the median of the corruption perception index. The regression results show that grants have a positive and significant impact on growth without sample selection. However, loans have a positive and significant impact on growth in the sub-sample of less corrupt countries, but a negative and significant impact on growth in the sub-sample of more corrupt countries. Therefore, the results suggest that ODA is useful for inducing growth in the early stages of development. However, improvement in the economic environment in terms of reduced corruption is required to increase the positive impact of ODA in the form of loans on growth.

There is increasing recognition that corruption has an adverse influence on growth as it distorts both market economy and democracy. However, the existing literature has failed to address countries' characteristics as far as the process of sample selection is concerned. This paper empirically reexamines the relationship between corruption and growth after dividing the data into two subsamples based on the Index of Ethnic Fractionalization (IEF). Using cross-national evidence, corruption is shown to be an obstacle to growth generally, a conclusion that is in line with the existing literature. Furthermore, a negative association between corruption and growth is found to exist in the subsample of countries with a lower IEF, in ethnically more homogeneous countries. However, there is little evidence that corruption impacts upon growth in the subsample of countries with a relatively higher IEF, in more heterogeneous or diverse countries. This implies that the adverse impact of corruption on growth increases in a country with a relatively low IEF and a strong homogeneity among its constituents, and remains in force so long as attempts to improve transparency are ineffective.