What Does Aid to Africa Finance?
Shantayanan Devarajan, Andrew Sunil Rajkumar, Vinaya Swaroop
If a donor gives aid for a project that the recipient government would have undertaken anyway, then the aid is financing some expenditure other than the intended project. The notion that aid in this sense may be "fungible," while long recognized, has recently been receiving some empirical support. This paper focuses on Sub-Saharan Africa—the region with the largest GDP share of aid—and presents results that indicate that aid may be partially fungible, and suggests some reasons why.