This paper examines the link between foreign aid and the composition of government spending in aid-recipient countries. Two questions are addressed: (i) does foreign aid crowd out government spending in aid-recipient countries, and (ii) does the degree of fungibility vary across different...

This paper examines fungibility as a possible explanation for the "missing link" between foreign aid and economic growth. The composition of aid plays a crucial role in determining the composition of government spending and, consequently, the magnitude of fungibility and its impact on growth....