Does Official development assistance for health from developed countries displace government health expenditure in sub-saharan countries?

Abstract

This paper empirically examines the foreign aid fungibility in the health sector of 45 Sub-Saharan countries over the period of 1995-2012. The aim of the study is to investigate the effect of foreign health aid on government health expenditure by using two methods: the Generalized Method of Moments (GMM) and the Fixed Effect Instrumental Variables (FE-IV). The estimation was conducted on the full sample and on two sub samples: middle- and low-income countries. We found strong evidence of partial fungibility in the health sector as follows: an increase of 1% in health aid leads to an increase of 0.04 to 0.1% of government health spending, noting that the magnitude of fungibility in middle-income countries is higher than in the low-income ones.