Editing Aid effectiveness (section)

===== Implications for Development =====  

The effects of aid fungibility on development outcomes are debated. Some studies suggest that fungibility reduces aid effectiveness by weakening donor control over expenditures, potentially allowing funds to be used for purposes unrelated to development.<ref name="WorldBank1998" /> Others argue that fungibility can have positive effects if governments reallocate the resources to areas with greater needs, or if it enhances overall [[Welfare spending|welfare]].<ref name="Rana2020">Rana, Z., & Koch, D.-J. (2020). Why fungibility of development aid can be good news: Pakistan case study. ''World Development Perspectives'', 20, 100248. [https://doi.org/10.1016/j.wdp.2020.100248 doi:10.1016/j.wdp.2020.100248]</ref><ref name="Rana2022">Rana, Z., & Koch, D.-J. (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 122/2022). UNU-WIDER. [https://doi.org/10.35188/UNU-WIDER/2022/255-3 doi:10.35188/UNU-WIDER/2022/255-3]</ref>  

Aid fungibility can also impact governance and accountability. When governments have more discretion over aid funds, it may lead to more efficient spending or, conversely, increased opportunities for misallocation.<ref name="Seim2020">Seim, B., Jablonski, R., & Ahlbäck, J. (2020). How information about foreign aid affects public spending decisions: Evidence from a field experiment in Malawi. ''Journal of Development Economics'', 146, 102522. [https://doi.org/10.1016/j.jdeveco.2020.102522 doi:10.1016/j.jdeveco.2020.102522]</ref>

Aid projects can also be in competition with government projects. If successful, they can become substitutes for government performance. In that case, voters' [[accountability]] towards their leaders is flawed, as the governments becomes popular due to the success of projects it is not responsible for, while taking credit for the work done by NGOs.<ref>{{cite book |last1=Birdsall |first1=Nancy |title=Deadly Sins: Reflections on Donor Failings |date=2006 |publisher=Routledge |isbn=9781315128252 |pages=16 |url=https://doi.org/10.4324/9781315128252}}</ref> This relates to literature about [[Dependency theory|aid dependency]], as aid can become a substitute and disincentivize state capacity of the government. Higher dependence on aid lowers state capacity and ultimately distorts the link between the government and its citizens.