Aid to Fight AIDS: An Empirical Analysis of HIV‐Specific Development Aid Effectiveness

Using an excludable instrument for HIV‐specific aid, we investigate its effectiveness on HIV outcomes viz., prevalence and death rates. We theorize that HIV‐specific aid fills the funding gap that prevents governments from committing adequate resources to effectively address the epidemic. Using an instrumental variable estimator with panel data covering 139 developing countries and a sub‐sample of 50 Sub‐Saharan African countries during the 2002–2020 period, we find that HIV‐specific aid is associated with a decline in HIV prevalence and death rates, respectively. These effects are greater in Sub‐Saharan Africa, the region worst affected by HIV. Furthermore, our interaction effects suggest that the effectiveness of HIV aid is conditional on the recipient country's level of public health expenditure and health system quality. Although aid may face fungibility issues, it has a significant impact when used to bridge funding gaps. Higher ex‐ante health spending reflects complementarity, where government health spending enhances rather than substitutes for health aid, depending on the quality of recipient health systems. These results are robust to alternative data, samples, and estimation methods. Our results are encouraging for the international donor community and the prospect of meeting the target of ending the HIV epidemic by 2030 enshrined in the Sustainable Development Goals (Goal 3).