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Is foreign aid fungible ? evidence from the education and health sectors

Listed author(s):
  • Van de Sijpe, Nicolas

This paper adopts a new approach to the issue of foreign aid fungibility. In contrast to most existing empirical studies, panel data are employed that contain information on the specific purposes for which aid is given. This allows linking aid that is provided for education and health purposes to recipient public spending in these sectors. In addition, aid flows that are recorded on a recipient's budget are distinguished from those that are not recorded on budget, and the previous failure to differentiate between on- and off-budget aid is shown to produce 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. The appropriate treatment of off-budget aid leads to lower fungibility estimates than those reported in many previous studies. Specifically, 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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6346.

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Date of creation: 01 Jan 2013
Handle: RePEc:wbk:wbrwps:6346
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  1. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.
  2. William Gould, 2006. "Mata Matters: Precision," Stata Journal, StataCorp LP, vol. 6(4), pages 550-560, December.
  3. Khilji, Nasir M. & Zampelli, Ernest M., 1994. "The fungibility of U.S. military and non-military assistance and the impacts on expenditures of major aid recipients," Journal of Development Economics, Elsevier, vol. 43(2), pages 345-362, April.
  4. Nicholas J. Cox, 2006. "Stata tip 33: Sweet sixteen: Hexadecimal formats and precision problems," Stata Journal, StataCorp LP, vol. 6(2), pages 282-283, June.
  5. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
  6. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
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