The thesis examines the impact of aid on Bangladesh and the inability of aid to lay the foundations for the country’s solid economic growth. It is argued that while aid has helped to sustain the present levels of per capita national output, it has been relatively ineffective in inducing the qualitative changes needed for achieving significant increases in production and improvement in income distribution. Findings imply that donors have responded as a group to changes in Bangladesh’s development requirements but major donors have also responded both to the country’s development requirements as well as their own interests. Donors’ own interests hamper aid effectiveness in the country’s development endeavours. The thesis investigates whether aid to Bangladesh has exerted any impact on the country’s economic growth. Following recent literature, the thesis examines whether the impact of aid on growth is conditional upon measures of policy and governance. This has not been attempted intensely in the past aid effectiveness literature. The thesis disaggregates total aid into its various components to examine whether aid effectiveness is conditional upon the type of aid. Results indicate that there is little evidence that foreign aid alone has contributed to economic growth in a country. But there is some evidence that aid can be effective at increasing growth while a country has good governance and macroeconomic policy environment in place. Given that Bangladesh suffers from high incidence of poverty and that there is a large incidence of inequality and differences in well-being, the thesis studies the mix of donor policies aimed at promoting economic growth with the poverty situation in the country. Growth in Bangladesh has never been pro-poor, and the high level of inequality that prevails is likely to reduce the impact of growth on poverty. Findings indicate that the sectoral allocation of foreign aid to Bangladesh has been broadly consistent with a strategy to effectively reduce poverty and increase human well-being. However, the thesis suggests a number of ways in which foreign aid can more effectively achieve these important goals. The thesis concludes with a number of policy recommendations arising from the research findings. It is recommended that foreign aid be provided considering the humanitarian needs and that project aid preferred over budget support. To support growth, aid should be used to foster appropriate human development and a productive investment environment and to support government policies that are beneficial to those whom aid is targeted for.