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Is Foreign Aid Fungible? Evidence from the Education and Health Sectors

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  • Nicolas Van de Sijpe

Abstract

This paper adopts a new approach to the issue of foreign aid fungibility. Unlike most existing empirical studies, I employ panel data that contain information on the specific purposes for which aid is given. This approach enables me to link aid that is provided for education and health purposes to recipient public spending in these sectors. In addition, I distinguish between aid flows that are recorded on a recipient's budget and those that are not recorded, and I illustrate how the previous failure to differentiate between on- and off-budget aid produces biased estimates of fungibility. Sector program aid is the measure of on-budget aid, whereas technical cooperation serves as a proxy for off-budget aid. I show that the appropriate treatment of off-budget aid leads to lower fungibility estimates than those reported in many previous studies. Specifically, I find that in both sectors and across a range of specifications, technical cooperation, which is the largest component of total education and health aid, leads to, at most, a small displacement of recipient public expenditures. Copyright 2013, Oxford University Press.

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Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 27 (2013)
Issue (Month): 2 ()
Pages: 320-356

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Handle: RePEc:oup:wbecrv:v:27:y:2013:i:2:p:320-356

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Cited by:
  1. Laurent WAGNER & Rohen DE JUNET D'AIGLEPIERRE, 2010. "Aid and Universal Primary Education," Working Papers 201022, CERDI.
  2. Axel Dreher & Silvia Marchesi, 2013. "Information transmission and ownership consolidation in aid programs," Working Papers 255, University of Milano-Bicocca, Department of Economics, revised Oct 2013.
  3. Nicolas Van de Sijpe, 2013. "The fungibility of health aid reconsidered," CSAE Working Paper Series 2013-10, Centre for the Study of African Economies, University of Oxford.
  4. Zenthöfer, A.F., 2013. "Essays on development economics," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5906745, Tilburg University.
  5. Aaron Batten, 2011. "Aid and Oil in Papua New Guinea: Implications for the Financing of Service Delivery," Development Policy Centre Discussion Papers 1104, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
  6. Patrick GUILLAUMONT & Laurent WAGNER, 2014. "Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries," Working Papers P96, FERDI.
  7. Aaron Batten, 2009. "How much foreign aid given to PNG has stayed within the sectors to which it has been allocated and how much has it allowed the PNG Government to free up its own resources for other spending priorities," International and Development Economics Working Papers idec09-05, International and Development Economics.
  8. Morrissey, Oliver, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  9. Jonathan R. W. Temple & Nicolas Van de Sijpe, 2014. "Foreign Aid and Domestic Absorption," CSAE Working Paper Series 2014-01, Centre for the Study of African Economies, University of Oxford.

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