Foreign Aid-Blessing or Curse: Evidence from Pakistan

Muhammad Khan and Ayaz Ahmed

The Pakistan Development Review, 2007, vol. 46, issue 3, 215-240

Abstract: The role of foreign aid in promoting economic growth is a debatable issue and remains unsettled at both theoretical and empirical levels. Pakistan has received a substantial amount of foreign aid since its Independence in 1947 but little improvement has been observed in its socio-economic development. This study considers the question as to whether foreign aid is a blessing or a curse for Pakistan. The empirical analysis is based on the ARDL cointegration approach. We examine the aid-growth link at the aggregate and disaggregate levels for the period 1972 2006. The results show negative and insignificant effects of foreign aid on the growth at the aggregate as well at the disaggregate level. The findings further suggest that domestic investment, export growth, and inflows of foreign direct investment are important contributors in enhancing economic growth in Pakistan.

Keywords: Foreign Aid; Economic Growth; FDI; Cointegration (search for similar items in EconPapers)
JEL-codes: C13 C22 F23 F35 O11 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (14)

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