Does foreign aid crowd out government investments? Evidence from rural health centres in Rwanda

BACKGROUND: Rural healthcare facilities in low-income countries play a major role in providing primary care to rural populations. We examined the link of foreign aid with government investments and medical service provision in rural health centres in Rwanda. METHODS: Using the District Health System Strengthening Tool, a web-based database built by the Ministry of Health in Rwanda, we constructed two composite indices representing provision of (1) child and maternal care and (2) HIV, tuberculosis (TB) and malaria services in 330 rural health centres between 2009 and 2011. Financing variables in a healthcare centre included received funds from various sources, including foreign donors and government. We used multilevel random-effects model in regression analyses and examined the robustness of results to a range of alternative specification, including scale of dependent variables, estimation methods and timing of aid effects. FINDINGS: Both government and foreign donors increased their direct investments in the 330 rural healthcare centres during the period. Foreign aid was positively associated with government investments (0.13, 95% CI 0.06 to 0.19) in rural health centres. Aid in the previous year was positively associated with service provision for child and maternal health (0.008, 95% CI 0.002 to 0.014) and service provision for HIV, TB and malaria (0.014, 95% CI 0.004 to 0.022) in the current year. The results are robust when using fixed-effects models. CONCLUSIONS: These findings suggest that foreign aid did not crowd out government investments in the rural healthcare centres. Foreign aid programmes, conducted in addition to government investments, could benefit rural residents in low-income countries through increased service provision in rural healthcare facilities.