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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 health purposes to recipient public spending in these sectors. In addition, I attempt to distinguish between aid flows that 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 fungibility for this type of aid. In static fixed effects models sector programme aid shows an almost one-for-one correlation with recipient public expenditure, again suggesting low fungibility, but this effect becomes imprecise and volatile in dynamic models estimated with system GMM.

Suggested Citation

  • Nicolas Van de Sijpe, 2010. "Is foreign aid fungible? Evidence from the education and health sectors," CSAE Working Paper Series 2010-38, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2010-38
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    References listed on IDEAS

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    Cited by:

    1. Temple, Jonathan & Van de Sijpe, Nicolas, 2017. "Foreign aid and domestic absorption," Journal of International Economics, Elsevier, vol. 108(C), pages 431-443.
    2. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    3. Patrick Guillaumont & Laurent Wagner, 2014. "Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries," Revue d’économie du développement, De Boeck Université, vol. 22(HS01), pages 217-261.
    4. Axel Dreher & Steffen Lohmann, 2015. "Aid and growth at the regional level," Oxford Review of Economic Policy, Oxford University Press, vol. 31(3-4), pages 420-446.
    5. Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley C. & Raschky, Paul A. & Tierney, Michael J., 2015. "Aid on Demand: African Leaders and the Geography of China's Foreign Assistance," CEPR Discussion Papers 10704, C.E.P.R. Discussion Papers.
    6. d’Aiglepierre, Rohen & Wagner, Laurent, 2013. "Aid and Universal Primary Education," Economics of Education Review, Elsevier, vol. 37(C), pages 95-112.
    7. repec:bla:rdevec:v:21:y:2017:i:3:p:627-663 is not listed on IDEAS
    8. Maiga, Eugenie W.H., 2014. "Does foreign aid in education foster gender equality in developing countries?," WIDER Working Paper Series 048, World Institute for Development Economic Research (UNU-WIDER).
    9. Ssozi, John & Amlani, Shirin, 2015. "The Effectiveness of Health Expenditure on the Proximate and Ultimate Goals of Healthcare in Sub-Saharan Africa," World Development, Elsevier, vol. 76(C), pages 165-179.
    10. Martínez Álvarez, Melisa & Borghi, Josephine & Acharya, Arnab & Vassall, Anna, 2016. "Is Development Assistance for Health fungible? Findings from a mixed methods case study in Tanzania," Social Science & Medicine, Elsevier, vol. 159(C), pages 161-169.
    11. Sarah Langlotz & Niklas Potrafke, 2016. "Does Development Aid Increase Military Expenditure?," CESifo Working Paper Series 6088, CESifo Group Munich.
    12. 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.
    13. 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.
    14. Morrissey, Oliver, 2015. "Aid and Government Fiscal Behavior: Assessing Recent Evidence," World Development, Elsevier, vol. 69(C), pages 98-105.
    15. Łukasz Marć, 2017. "The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 627-663, August.
    16. Nicolas Van de Sijpe, 2013. "The Fungibility of Health Aid Reconsidered," Journal of Development Studies, Taylor & Francis Journals, vol. 49(12), pages 1746-1754, December.
    17. Axel Dreher & Andreas Fuchs & Sarah Langlotz, 2018. "The Effects of Foreign Aid on Refugee Flows," CESifo Working Paper Series 6885, CESifo Group Munich.
    18. Cockx, Lara & Francken, Nathalie, 2016. "Natural resources: A curse on education spending?," Energy Policy, Elsevier, vol. 92(C), pages 394-408.
    19. repec:unu:wpaper:wp2012-01 is not listed on IDEAS
    20. Nicolas Van de Sijpe, 2013. "The Fungibility of Health Aid Reconsidered," Journal of Development Studies, Taylor & Francis Journals, vol. 49(12), pages 1746-1754, December.

    More about this item

    Keywords

    foreign aid; fungibility; public education expenditure; public health expenditure;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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