The United Nations and other aid agencies are calling for aid to be more than doubled so that the Millennium Development Goals (MDGs) can be achieved by 2015. Unfortunately, as this paper shows, many important donors currently distribute their aid in ways that are not consistent with the MDGs....

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...