This paper highlights the economic challenges that would be associated with a successful effort by industrial countries to meet the goal of devoting 0.7 percent of their GNP to official development assistance (ODA) to help poor countries. To help achieve the Millennium Development Goals, enhanced ODA must be as productive as possible. In weighing the distribution of aid among countries, it is necessary to limit potentially adverse ‘real transfer effects’. A multi-pronged approach to ODA is recommended that includes the use of trust funds and the financing of global public goods, in addition to direct bilateral transfers.