The thesis examines the effectiveness and relevance of the social fund bottom-up development model in promoting community participation and enhancing local institutional capacity within the social, political and institutional context of post-Soviet Armenia. The thesis uses a case study of the World Bank supported Armenia Social Investment Fund (ASIF) project. One of the objectives of ASIF was to promote participation of local communities in their own economic and social development and to build their capacity for effectively addressing local problems. The research was conducted in seven rural communities in Armenia. The research found that ASIF was not successful in promoting community participation and institutional capacity at a community wide level. It benefited the rural elite, and hence contributed to the perpetuation of the exiting power structures and inequalities in the local communities. The research demonstrates that the extent and nature of participation and local institutional capacity in Armenia are determined by the broader institutional, social and political context within which communities live and function. In particular, participation and local capacity are constrained by the governance environment at the macro and micro levels and high levels of material and social deprivation in local communities. The research findings question the effectiveness and relevance of the social fund bottom-up development model. The bottom-up model is based on the cultural view of institutional change, presuming that changes in the mentality, behavioural patterns and human capabilities can result in greater participation and enhanced local capacity. The research concludes that community based interventions may not be effective in fostering sustainable civic institutions without addressing the structural factors that determine the ability of individuals to realise their potential and become active agents.