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Can fungibility of development aid lead to more effective achievement of the SDGs?: An analysis of the aggregate welfare effect of aid fungibility

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  • Zunera Rana
  • Dirk-Jan Koch

Abstract

In this paper, we explore the relationship between foreign aid fungibility and aggregate welfare. Using panel data from 35 low-income and lower-middle-income countries, we first check the presence of sectoral aid fungibility in our sample and find evidence for it. We then use econometric methods to empirically analyse the impact of this fungibility on aggregate welfare as measured through the Human Development Index. Our findings suggest that in some cases sectoral aid fungibility can lead to an improvement in aggregate welfare.

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  • Zunera Rana & Dirk-Jan Koch, 2022. "Can fungibility of development aid lead to more effective achievement of the SDGs?: An analysis of the aggregate welfare effect of aid fungibility," WIDER Working Paper Series wp-2022-122, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2022-122
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    References listed on IDEAS

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    1. Wagstaff, Adam, 2011. "Fungibility and the impact of development assistance: Evidence from Vietnam's health sector," Journal of Development Economics, Elsevier, vol. 94(1), pages 62-73, January.
    2. Pierre‐Richard Agénor & Devrim Yilmaz, 2013. "Aid Allocation, Growth And Welfare With Productive Public Goods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 103-127, March.
    3. Adeniyi Jimmy Adedokun, 2017. "Foreign Aid, Governance and Economic Growth in Sub-Saharan Africa: Does One Cap Fit All?," African Development Review, African Development Bank, vol. 29(2), pages 184-196, June.
    4. Nicolas Van de Sijpe, 2013. "Is Foreign Aid Fungible? Evidence from the Education and Health Sectors," The World Bank Economic Review, World Bank, vol. 27(2), pages 320-356.
    5. Oliver Morrissey, 2001. "Does aid increase growth?," Progress in Development Studies, , vol. 1(1), pages 37-50, January.
    6. Nicolas Van de Sijpe, 2013. "Is Foreign Aid Fungible? Evidence from the Education and Health Sectors," World Bank Economic Review, World Bank Group, vol. 27(2), pages 320-356.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Foreign aid; Econometrics; Aggregate welfare; Fungibility; SDGs;
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