Foreign aid has shown changes in its prime goal and instrument in the lastseveral decades. In addition to developing countries’ realities and internationalpolitical terrain, new thoughts in development economics have highlyinfluenced the evolution in foreign aid. This study examines this relationship.At first, the classical growth theory supported that aid would promote growthby filling the investment-saving gap of developing economies. Thereafter,neo-classical trade theory served as an academic basis for the use of aid fundfor structural adjustment, while the capability approach of A. Sen redirectedaid to prioritize human development. New institutional economics andempirical studies on aid effectiveness led aid to facilitate institutional changesin developing countries. The recent development in policy evaluation methodsunderlined the effectiveness of aid projects at the micro level.