The impact of development aid on education and health: Survey and new evidence from dynamic models

We investigate the impact of aggregate aid, earmarked aid, committed or disbursed, on social indicators in health and education. A literature review shows that for earmarked aid use of commitment data mostly leads to insignificant results; use of disbursement data mostly leads to significantly favourable results; panel data models including lagged dependent variables lead to significantly favourable results for at least one form of aid unless only commitment data are used. In our own analysis of effects of aggregate aid per capita on life expectancy and literacy we find from detailed analysis of lag structures that the data for literacy and life expectancy in dynamic panel data models should be taken in the form of growth rates. Growth rates of aid per capita are shown to have significantly favourable effects on the growth rates life expectancy. Growth rates or levels of aid per capita may reduce growth rates of illiteracy in system GMM estimates.