Several studiesemphasize the importance of the general environment in recipient countries for effectiveness of developmentaid. Another more recent strand of the literatureconsiders whether the receipt of aid affects the happiness of developing countries. Since corruption, an indicator of the general environment, coexists with aid weconsider an empirical model where both are arguments of a happiness production function. We present evidence on the relationship between happiness and aid given different levels of corruption. We find that accounting for corruption, aid has a negative marginal effect on happiness – but only in countries where corruption is most rampant.
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