Aid Crowd-Out: The Effect of NGOs on Government-Provided Public Services

Abstract

We document that in poor rural communities where government workers provide basic health services, the entry of an NGO that aims to provide similar services reduces the supply of government workers and total services. This is consistent with the NGO providing the combination of higher pay and stronger incentives for commercial activities. The decline in health services is most pronounced in villages where the NGO hires the government worker, and is accompanied by an increase in infant mortality. In villages without any health worker beforehand, NGO entry unambiguously increases health services and reduces infant mortality.

Keywords: Aid effectiveness, foreign aid

JEL Classification: O1, O2