The Politics of Public Health Aid: Why Corrupt Governments Have Incentives to Implement Aid Effectively

Conventional wisdom suggests that foreign aid is more effective in less corrupt states. Recently, however, research is emerging that suggests that this argument may be too broad and that the effect of governance on aid effectiveness is masked by the study of aggregate aid flows. I focus on the public health sector and develop an argument of strategic compliance: corrupt recipient governments have incentives to comply with donor objectives but they will do so in aid sectors, in which compliance is cheap. I use two-step Generalized Method of Moments (GMM) as my primary estimation technique. I find strong and robust evidence for my argument. (C) 2010 Elsevier Ltd. All rights reserved.