Purpose This paper offers a review of theoretical and empirical literature on the effectiveness of development aid on aid recipients’ economic development. Design/methodology/approach The study employs an integrative literature review framework, combining conceptual and thematic synthesis. It focuses on two strands: the theories and empirics of indirect and direct effects of development aid and evolving discussions on blended finance and results based financing (RBF). Findings The aid-poverty nexus remains inconclusive. Literature signals that despite large aid flows, traditional aid mechanisms are burdened with challenges. In answer to this, innovative models like blended finance and RBF have gained prominence, proving fresh, promising avenues to improve aid effectiveness. This is achieved by attracting private investments, easing risks and incentivizing outcome-based performance in recipient countries. Originality/value This review study underscores the capability of innovative approaches like Blended Finance and RBF to overcome shortcomings of established approaches and their advancing prospective development agendas.
Deepa Narayan (Wed,) studied this question.