Foreign aid allocated primarily aims to improve economic and human development in recipient countries. Despite the substantial increase in foreign aid during recent years, the impact of human development outcomes differs significantly across recipient countries. The thesis aims to investigate the impact of sectoral foreign aid on human development in recipient countries. In addition, it analyzes which of the three sectors that receive the highest amount of aid allocation have a significant relationship to human development. These are the social infrastructure sector, the economic infrastructure sector, and the production sector. It uses the panel estimation method, and the HDI is a composite index of human development used as a framework for analysis of the results to consider aid impacts on factors such as health, education, and standard of living. Further, the principal-agent theory is used for analyzing the data’s complexity. Moreover, this thesis aims to view sectoral foreign aid’s heterogenous potential possibilities and obstacles for human development in receiving countries. The data consists of 126 countries receiving aid observed from 2002 to 2019. The estimation results suggest that development aid allocated to the economic infrastructure sector has a significant relationship with human development in the pooled ordinary least squares models (OLS) without controlling for country heterogeneity. However, no such association is observed when the fixed effects model (FE) is estimated. The social infrastructure negatively impacted HDI in the OLS model but did not significantly affect the FE model. Lastly, the production sectors had a negative impact on HDI in both the pooled OLS and FE models.