The Health Benefits of Political Constraints How Health Aid can Improve Health Expenditure Jennifer Brett, IRCHSS Scholar, Trinity College Dublin DEVELOPMENT STUDIES ASSOCIATION CONFERENCE, 5TH NOVEMBER 2010, CHURCH HOUSE, LONDON

Introduction Several MDG goals focus on health ▫Goal 4: Reduce child mortality by two-thirds ▫Goal 5: Reduce maternal mortality by three- quarters ▫Goal 6: Halt and reverse the spread of HIV/AIDs, malaria and other diseases. Steady increase in health aid

Health Aid:

Health Aid and Health Outcomes Lu et al (2010) found that health aid given to governments has a negative and significant effect on domestic government health spending Mishra and Newhouse (2007) found that health aid reduced infant mortality and doubling health aid is associated with a 7 percent increase in health spending per capita

Research Purpose Identify the political conditions under which political leaders are most likely to use health aid effectively, that is, to increase public health expenditure The role of political constraints ▫Do political constraints create an environment conducive to a positive relationship between health aid and health expenditure?

Political Constraints 1 Political constraints create an environment conducive to investment and hence economic development  North, 1981, 1990;Henisz, 2002, 2000a, 2000b; Henisz and Zelner, 2001; Levy and Spiller, 1996 Credible commitments ▫Cannot renege on agreements ▫Benefits of being constrained outweigh the cost

Political Constraints 2 When leaders seek to enhance the growth of the country, incentives for them to invest in both human and physical capital  North and Thomas, 1973; Jones, 1981; North, 1981 Credible commitments encourage investment, but also need healthy and productive workforce Health is a statistically significant determinant of growth – invest in health to have direct impact on growth  Fogel 1994, Barro and Sala-i-Martin 2004, Schultz 1997, Strauss and Thomas 1998

Political Constraints 3 Unconstrained leaders cannot make credible commitments ▫No incentive to increase productive capacity of workforce Rent-seeking occur at low levels of constraints ▫Leaders use to gain income Health expenditure negatively affected by rent- seeking  Delavallade, 2006; De la Croix and Delavallade 2009

Hypothesis Health aid has a positive effect on health expenditure at medium and high levels of constraints, but has no effect, or a negative effect, at low levels Governments able to make credible commitments, invest in human capital to provide a productive workforce. Health has a direct positive effect on economic growth - governments can enhance growth directly by investing in health. Governments that are constrained are restricted from rent seeking

Data Health Aid/GDP ▫Creditor Reporting System (OECD) ▫Health Aid disbursements ▫Lagged 1 year ▫No endogeneity Political Constraints: POLCONIII ▫Henisz (2002) ▫Number of independent veto points over policy outcomes and the distribution of preferences ▫0-1 Public Health Expenditure ▫World Development Indicators 2010

Results Variable Health Aid (1.758) Constraints * (2.251) Health Aid*Constraints 9.596** (4.004) Standard errors in parentheses; P values 1% ***5% ** 10% *

The Marginal Effect of Health Aid on Public Health Expenditure as the number of Constraints Changes

The Marginal Effect of Health Aid on Public Health Expenditure as the number of Constraints Changes (Robustness Test)

Conclusion Where leaders are effectively constrained, health aid is positively associated with health expenditure At the lowest levels of constraints, health aid had a negative relationship with health expenditure ▫Evidence of fungibility? Importance of institutional structures when allocating aid