Profits before patients? Analyzing donors’ economic motives for foreign aid in the health sector

Why do some donor countries allocate their foreign aid according to their own interests, while others pay more attention to the needs of recipient countries? By focusing on the health sector, this paper explains the difference in aid allocation patterns across donors from two factors: The influence of the powerful pharmaceutical industry and the structure of the foreign aid institution. I argue that where an aid agency is not institutionally autonomous, donors that are home to powerful pharmaceutical companies give a higher portion of their health aid to activities that require the use of pharmaceutical products. In contrast, donors with autonomous aid agencies, even when they have large pharmaceutical companies, allocate health aid regardless of whether such allocation would benefit their economic constituents. While the majority of existing research analyzes the selection of recipient countries to examine the motives of donors, this paper makes the case that assessing the selection of specific activities is useful in analyzing donor's economic motives. Statistical analysis of dyadic panel data of 23 OECD donor and 149 recipient countries lends support to these arguments. The findings challenge the naive assumption that health aid is different because it is closely related to basic human needs.