The Relationship Between Health aid and Health Outcomes and the Role of Domestic Healthcare Expenditure in Developing Countries

Abstract

Foreign aid is a controversial tool for helping developing countries achieve economic growth and welfare. Nevertheless, the early 2000s saw a rise in development assistance dedicated to the health sector. The concept of sustainable development highlights the importance of a healthy population to achieve overall development. Using a dataset containing Official Development Assistance channelled towards 100 countries between 2002 and 2020, this paper studies the effect of health aid on health outcomes. To test aid effectiveness, regression models are estimated using infant mortality and life expectancy as proxies for health outcomes. The analyses show that health aid has a positive effect on population health. Moreover, this study tests whether domestic government health expenditure can give further insights into the complex relationship between aid and health improvements. Results yield no significant effect of health aid on public health expenditure; hence no mediation effect can be found. Findings are robust to varying controls and an instrumental variable approach, where two-year lagged health aid is used as instrument. Results also suggest that socioeconomic factors like urbanisation have a positive effect on health outcomes, which implies that population health depends on many factors besides monetary resources.