This manuscript discusses the developments in economic theory between 1970 and 1980 and looks at the implications for the policies of aid donors.

The author concludes that by imposing policy conditions aid donors will become active players in the domestic politics of the recipient country. Yet, their power to bring about major change is generally circumscribed. The danger is that donors will use their political influence in ways which have political consequences that cannot be anticipated. When faced with such danger, government will resist the policy leverage of donor agencies and conditionality is unlikely to affect much real change. Therefore, aid donors should encourage experimental, tailor-made approaches to the design of policies in recipient countries.