Editing Aid effectiveness (section)

===== Case Studies =====  

Empirical research has provided mixed evidence on the extent and consequences of aid fungibility:  

* A study on '''China’s foreign aid to Africa''' found that aid projects were often located in politically strategic areas, suggesting that recipient governments influence aid allocation.<ref name="Dreher2019" /> Indeed, aid provided by China is found to be redirected to local leaders' ethnic homeland, as compared to other regions. On the other hand, this effect is not present with development projects financed by the World Bank.
* Research in '''Pakistan''' suggested that aid fungibility might contribute to better overall resource allocation, improving social outcomes.<ref name="Rana2020" /> In this study, it is shown that there is a "U-shaped" relationship between aid received by the government and its expenditures on development projects. That is, when receiving a low amount of aid, the government will invest more in development projects with its resources. When the amount of aid received increases, the incentive to spend on development projects decreases.
* Studies on '''Rwanda'''<ref name="Rana2022-2" /> and '''Malawi'''<ref name="Seim2020" /> examined how recipient governments’ control over aid influences public spending, with varied effects on efficiency and transparency.<ref name="Rana2022" /> The experiment in Malawi showed that politicians receiving information about existing development projects in local schools were less likely to send development money to those schools and target other needy but not-yet-targeted areas. The study in Rwanda investigates aid fungibility when countries take ownership of their development programs. Akin to the Pakistan study,<ref name="Rana2020" /> a "U-shaped" relationship between aid received and government expenditures on development. While the government was able to shift aid to projects that were in its priorities, increasing aid effectiveness, concerns were raised about certain sectors being left aside, and the need for control from institutions.<ref name="Rana2022-2">Rana, Z. A., & Koch, D.-J. (2022, September). What happens to aid fungibility when the recipient government takes control? effects of aid ownership in rwanda. Development Policy Review , 40 (5). Retrieved
from https://doi.org/10.1111/dpr.12604 doi: 10.1111/dpr.12604</ref>