The Health Benefits of Political ConstraintsHow 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: 2003-2008

2003 2004 2005 2006 2007 20080

1000

2000

3000

4000

5000

6000

7000

8000Health Aid

Year

US C

urr

ent

Mil

lions

Dis

burs

em

ents

Source: OECD 2010

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 -1.26

(1.758)Constraints -4.158*

(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

-50

510

Ma

rgin

al E

ffe

ct o

f H

ea

lth A

id

0 .1 .2 .3 .4 .5 .6 .7 .8 .9

Constraints (POLCON)

Marginal Effect of Health Aid95% Confidence Interval

Dependent Variable: Health Expenditure as a percentage of Total Government Expenditure

Marginal Effect of Health Aid on Health Expenditure

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

-50

510

Ma

rgin

al E

ffe

ct o

f H

ea

lth A

id

0 1 2 3 4 5 6 7

Constraints

Marginal Effect of Health Aid95% Confidence Interval

Dependent Variable: Health Expenditure as a percentage of Total Government Expenditure

Marginal Effect of Health Aid on Health Expenditure As Constraints Changes

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