To aid or not to aid?

For many years, foreign aid has been a controversial tool for helping developing countries achieve economic growth and overall welfare. Nevertheless, the early 2000s saw a rise in development assistance dedicated to the health sector. Currently the concept of sustainable development highlights the importance of a healthy population to achieve overall development within and among countries. Does this imply that aid dedicated specifically to the health sector is more effective in producing positive results in recipient countries? Using a dataset that contains Official Development Assistance channelled towards 84 countries between 2008 and 2018, this thesis studies the effect of health aid on health outcomes. To test aid effectiveness, regression models are estimated using infant mortality and life expectancy as proxies for health outcomes. The analyses show only weak effects of health aid on health outcomes in recipient countries. Moreover, this study tests whether domestic healthcare expenditure can give further insights into the complex relationship between aid and development in the health sector by testing for mediation effects. Results yield no direct or indirect mediation effect. Nonetheless, findings show that domestic healthcare expenditure positively affects life expenditure rates in recipient countries. Overall, results suggest that health aid is not a panacea for improving health conditions, and that it is important for developing countries to invest domestic resources in their healthcare system, rather than relying on financial flows from outside the country. Countries should focus on effective policymaking that fosters domestic resources in the long term in order to build robust healthcare systems. Additionally, the influence of both urbanisation and domestic private health expenditure on health outcomes should be investigated further to identify the key drivers of population health.