The aid-corruption paradox in development : An examination of provinces in Indonesia

Abstract

The relationship between aid and corruption remains ambiguous. On the one hand, aid may benefit a country if the aid management system runs efficiently and transparently. On the other hand, aid tends to create new problems, namely corruption, especially in developing countries. This research examines the aid-corruption paradox in Indonesian provinces from a spatial perspective. The data was obtained from the Indonesian Ministry of Finance, the National Development Planning Agency of Indonesia, the Corruption Eradication Commission of Indonesia, and the Electronic Procurement Service, referring to 34 Indonesian provinces between 2011 and 2019. The research applies the spatial panel method and uses Haversine distance to construct the weighted matrix. The spatial error model (SEM) is the best for Model 1 (Grants) and Model 2 (Loans) and the best corruption model in Model 3 (Gratification). The spatial autoregressive model (SAR) is the best approach for Model 4 (Public Complaints) and Model 5 (Corruption). The findings show that there is no spatial dependence between provinces in Indonesia in terms of grants or loans. However, corruption in Indonesia is widespread.