The study aims to address the question of impact of aid supply on sustainable development. The paper selectively reviews existing body of literature on governance and leadership problems affecting aggregate aid availability. The findings retain the basic idea that donors allocate aid to increasing number of countries with weak governance and leadership structures. As a result, only a fraction of the aid money reaches the poor due to the hard challenge of aid administration in developing countries. We find that the exclusion of poor countries from aid support progammes comes on the back of aid money embezzlement by local elites who receive greater shares of funds on behalf of their constituencies. The paper bridges differents stands of literature in inter-country aid allocation game and provides insights on strategies for overcoming elite capture problem which decreases welfare function of poor populations to whom aid is targeted. We recommend an external monitoring-cum punishment mechanism endogenously set by the donor to check embezzlement. In our analysis of the elite capture problem in developing countries, we refrain from establishing a link between theoretical prediction and the empirical literature on aid effectiveness because of the complex methodological and measurement problems associated with empirical literature. Nevertheless, the growing importance of the study is underlined by the large portfolio of funds received for agricultural projects with foreign bilateral and multilateral financial assistance. This study is one of the first studies that aim to evaluate the effect of aggregate aid availability on sustaianable development from a developing economy perspective.

Keywords: Aggreagate Aid Supply, Poverty Reduction, Project Aid Administration, Sustainable Development.