Aid Efficacy
Aid effectiveness literature to date primarily analyzes the macroeconomic impacts of aid on recipient country economic growth, and consistently yields inconclusive results. Similar uncertainty exists in the growing literature on AIDS-aid of what determinants cause changes in HIV rates.
This study diverts from mainstream uncertainty in two notable ways. First, I use HIV rates instead of economic growth as a unique dependent variable to measure aid efficacy. Boone (1994, 1996) pioneered new indicators of growth - infant mortality, primary school ratios, and life expectancy- although he confirmed the same weak relationship between aid and investment that the literature upholds. Secondly, I build this study off of Burnside and Dollar’s (BD) 2000 conclusion that aid can impact macroeconomic growth, but only when recipient nations endorse specific “good” policies.
BD found that aid has a positive impact on growth in developing countries when interacted with a Policy Index of “good” fiscal, monetary, and trade policies, but has no effect on growth in countries with “poor” policies. Easterly et al challenged BD’s theory in 2004, using the same model and an expanded data set to prove that not even in countries with “good” policies could aid be proven to promote economic growth. Although the effects of aid remain inconclusive, the Policy Index and subsequent Interaction Term (Aid x Policy) remain useful tools to measure if and how policies influence the efficacy of aid. Bueno de Mesquita (BDM) et al (2003) suggest that aid effectiveness is determined in part by political and institutional conditions in the recipient country, as a result of leaders’ tendency to prioritize political survival. If a leader’s political survival is not dependent on provision of public good as specific as AIDS services, AIDS-aid may not be used as intended. I therefore adopt BD’s hypothesis and create a Policy Index of conditions under which AIDS relief is possible , and an Interaction Term of AID-aid and Policy. Health Economics literature theorizes that AIDS-aid is more likely to work in countries with ‘good governance,’ strong health systems, and gender equality, and these factors help develop an appropriate Policy Index for this study.
Selection Bias
In addition to the conditions of recipient nations, the bias of donors also plays a role in the ultimate efficacy of aid. How is AIDS-aid allocated and what is the motivation behind donor behavior? Alesina and Dollar (2000) show that aid is driven primarily by strategic interests, a view supported by Mascarenhas and Sandler (2006) who claim aid is not given altruistically to those in most need, but rather bureaucratically, according to donor interests. PEPFAR programs are openly criticized for giving in this way, as they are accused of funding scientifically ineffective programs, like promotion of abstinence to appease conservative funders, which often means restricting access to birth control and other sexual health services to those in need. Ulterior motives are surely at play when AIDS-aid is given to programs that are scientifically evidenced to be ineffective.
Vreeland’s (2004) findings that nations who align their UN votes with those of the US get greater access to IMF funds suggests there is indeed a selection bias in the aid world, and that perhaps rich nations give for policy concessions instead of based on pure need. Even aside from pursuit of policy concessions to satiate rich nations, Easterly (2005) suggests that AIDS donors may not even consider AIDS relief a desired outcome of donations. He suggests that bureaucratic hierarchies of any large international organization perpetuate giving without requiring results, and that top-down efforts have bad incentives built in because high-level agents are not held accountable when their programs fail, as they remain employed as long as poverty persists. Indeed studies show that PEPFAR disbursements are marred with allegations of bureaucratic delays, resulting in insufficient and untimely disbursements , and the Global Fund shares a record of low disbursement rates and has publicly disclosed in-country experiences that recipient governments were often unable to spend money due to delayed use of resources and reliance on unreliable actors outside the government to implement the grant.
BDM’s selectorate theory (2003) suggests regime type and donor desires for policy concessions as potentially relevant variables for a selection equation if donors do give for reasons other than altruism. If leaders can ensure their political survival by providing a small amount of private goods to their core winning coalition, the chance of receiving aid increases as a country’s winning coalition size decreases, relative to the greater body of all citizens eligible to be part of the elite winning coalition. This occurs because donors can obtain desired policy concessions more cheaply from leaders who will keep and not actually disburse aid as national public goods.
This paper fills an existing gap in aid effectiveness literature that leaves unanswered the effects of specific HIV/AIDS-aid, and explores new measures of aid efficacy, substituting HIV prevalence rates as a dependant variable instead of traditional measures of economic growth, while controlling for selection bias.
Aid effectiveness literature to date primarily analyzes the macroeconomic impacts of aid on recipient country economic growth, and consistently yields inconclusive results. Similar uncertainty exists in the growing literature on AIDS-aid of what determinants cause changes in HIV rates.
This study diverts from mainstream uncertainty in two notable ways. First, I use HIV rates instead of economic growth as a unique dependent variable to measure aid efficacy. Boone (1994, 1996) pioneered new indicators of growth - infant mortality, primary school ratios, and life expectancy- although he confirmed the same weak relationship between aid and investment that the literature upholds. Secondly, I build this study off of Burnside and Dollar’s (BD) 2000 conclusion that aid can impact macroeconomic growth, but only when recipient nations endorse specific “good” policies.
BD found that aid has a positive impact on growth in developing countries when interacted with a Policy Index of “good” fiscal, monetary, and trade policies, but has no effect on growth in countries with “poor” policies. Easterly et al challenged BD’s theory in 2004, using the same model and an expanded data set to prove that not even in countries with “good” policies could aid be proven to promote economic growth. Although the effects of aid remain inconclusive, the Policy Index and subsequent Interaction Term (Aid x Policy) remain useful tools to measure if and how policies influence the efficacy of aid. Bueno de Mesquita (BDM) et al (2003) suggest that aid effectiveness is determined in part by political and institutional conditions in the recipient country, as a result of leaders’ tendency to prioritize political survival. If a leader’s political survival is not dependent on provision of public good as specific as AIDS services, AIDS-aid may not be used as intended. I therefore adopt BD’s hypothesis and create a Policy Index of conditions under which AIDS relief is possible , and an Interaction Term of AID-aid and Policy. Health Economics literature theorizes that AIDS-aid is more likely to work in countries with ‘good governance,’ strong health systems, and gender equality, and these factors help develop an appropriate Policy Index for this study.
Selection Bias
In addition to the conditions of recipient nations, the bias of donors also plays a role in the ultimate efficacy of aid. How is AIDS-aid allocated and what is the motivation behind donor behavior? Alesina and Dollar (2000) show that aid is driven primarily by strategic interests, a view supported by Mascarenhas and Sandler (2006) who claim aid is not given altruistically to those in most need, but rather bureaucratically, according to donor interests. PEPFAR programs are openly criticized for giving in this way, as they are accused of funding scientifically ineffective programs, like promotion of abstinence to appease conservative funders, which often means restricting access to birth control and other sexual health services to those in need. Ulterior motives are surely at play when AIDS-aid is given to programs that are scientifically evidenced to be ineffective.
Vreeland’s (2004) findings that nations who align their UN votes with those of the US get greater access to IMF funds suggests there is indeed a selection bias in the aid world, and that perhaps rich nations give for policy concessions instead of based on pure need. Even aside from pursuit of policy concessions to satiate rich nations, Easterly (2005) suggests that AIDS donors may not even consider AIDS relief a desired outcome of donations. He suggests that bureaucratic hierarchies of any large international organization perpetuate giving without requiring results, and that top-down efforts have bad incentives built in because high-level agents are not held accountable when their programs fail, as they remain employed as long as poverty persists. Indeed studies show that PEPFAR disbursements are marred with allegations of bureaucratic delays, resulting in insufficient and untimely disbursements , and the Global Fund shares a record of low disbursement rates and has publicly disclosed in-country experiences that recipient governments were often unable to spend money due to delayed use of resources and reliance on unreliable actors outside the government to implement the grant.
BDM’s selectorate theory (2003) suggests regime type and donor desires for policy concessions as potentially relevant variables for a selection equation if donors do give for reasons other than altruism. If leaders can ensure their political survival by providing a small amount of private goods to their core winning coalition, the chance of receiving aid increases as a country’s winning coalition size decreases, relative to the greater body of all citizens eligible to be part of the elite winning coalition. This occurs because donors can obtain desired policy concessions more cheaply from leaders who will keep and not actually disburse aid as national public goods.
This paper fills an existing gap in aid effectiveness literature that leaves unanswered the effects of specific HIV/AIDS-aid, and explores new measures of aid efficacy, substituting HIV prevalence rates as a dependant variable instead of traditional measures of economic growth, while controlling for selection bias.
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