David Roodman

David Roodman is a research fellow at the Center for Global Development currently focusing on microfinance. He usually blogs at David Roodman’s Open Book Microfinance Blog.

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The Health Aid Fungibility Debate: Don’t Believe Either Side

May 14, 2012

Have you followed the debate on whether health is “fungible,” i.e., whether giving money to governments to spend on health leads them to cut their own funding for same, thereby effectively siphoning health aid into other uses? It has been like watching the French Open from a center-line seat. Two years ago, a team of authors mostly affiliated with the Institute for Health Metrics and Evaluation (IHME) in Seattle concluded in the Lancet (gated) that health aid has been highly fungible. Now two physician-scholars at Stanford have reanalyzed IHME’s data in PLoS Medicine (quite ungated) and judged the Lancet findings to be spuriously generated by bad and/or extreme data points.

The original paper estimated that for every dollar that in developing-countries governments received in health-focused aid, they cut health spending from their own resources, such as tax revenues, by $0.43–1.14. Ergo, donors who thought they were investing in health were substantially financing something else unknown—road building? jets for dictators? That conclusion went for the noted private philanthropy that paid for the research. This uncomfortable factoid about fungibility was widely cited in academia, and in the press (e.g., the New York Times, where it cameoed, garbled, on the home page).

To the casual reader, the reanalysis by Rajaie Batniji and Eran Bendavid seems damning:

We…demonstrate that prior conclusions drawn from these data are unstable and driven by outliers. While government spending may be displaced by development assistance for health in some settings, the evidence is not robust and is highly variable across countries.

My advice: don’t trust the conclusions of either side.
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Squishy Findings on Aid Fungibility

April 16, 2010

By David Roodman in Global Health

Tomorrow is apparently the official release date of a Lancet article you may already have read. Christopher Murray (the corresponding author) and his colleagues have assembled a detailed and comprehensive data set on “development assistance for health” (DAH). This data set, released last year, is an achievement in itself. (See Mead Over’s commentary.) The new study plugs the DAH data into cross-country regressions to study a big question: how does aid for health affect total health spending in receiving countries?

This is an interesting and important exercise, but I believe that the information supplied does not warrant such confident causal claims as this:

The statistical analysis showed that DAH to government had a negative and significant effect on domestic government spending on health such that for every US$1 of DAH to government, government health expenditures from domestic resources were reduced by $0·43 (p=0) to $1·14 (p=0). However, DAH to the non-governmental sector had a positive and significant effect on domestic government health spending.