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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 takes a fresh look at the issue of foreign aid fungibility.� Unlike the bulk of existing empirical studies, I employ panel data that contain information on the specific purpose for which aid is given.� This allows me to link aid given for education and healt purposes to recipient public spending in these sectors.� In addition, I attempt to distinguish between aid flows taht are recorded on the recipient's budget and those that are off-budget, and illustrate how a failure to differentiate between on- and off-budget aid produces biased estimates of fungibility.� Sector programme aid is the measure of on-budget aid, while technical cooperation serves as a proxy for off-budget aid.� In both sectors, across a range of specifications, technical cooperation leads to at most a small displacement of recipient public expenditure, implying limited fungibiity for this type of aid.� In static fixed effects models sector programme aid shows an almsot one-for-one correlation with recipient public expenditure, again suggesting low fungiblity, but this effect becomes imprecise and volatile in dynamic models estimated with system GMM.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-38.

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Date of creation: 01 Nov 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-38

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Keywords: Foreign aid; fungibility; public education expenditure; public health expenditure;

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Citations

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Cited by:
  1. Axel Dreher & Silvia Marchesi, 2013. "Information Transmission and Ownership Consolidation in Aid Programs," CESifo Working Paper Series 4437, CESifo Group Munich.
  2. 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.
  3. 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.
  4. Zenthöfer, A.F., 2013. "Essays on development economics," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5906745, Tilburg University.
  5. 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).
  6. 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.
  7. Rohen D'Aiglepierre & Laurent Wagner, 2011. "Aid and Universal Primary Education," Working Papers halshs-00552241, HAL.
  8. 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.
  9. 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.

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