This study examines the impact of foreign aid instruments,
namely Project Aid and Programme Aid, on economic growth of 27
aid-receiving countries. The study constructs a system of three
equations, i.e. growth, investment and human capital. Using the
Generalised Method of Moment estimation technique, the study concludes
that while Project Aid has a positive and significant impact on economic
growth, Programme Aid has an insignificant impact on economic growth.
Additionally, the study finds that economic policies do enhance
effectiveness of aid at aggregate level. Therefore, the capacity of
aid-recipient countries to effectively use their resources for economic
development needs due consideration. Keywords: Project Aid, Programme
Aid, Economic Growth, Conditionality, Procurement Reform, System
Equation Method, Generalised Method of Moment (GMM), Principal Component
Analysis