A Time Series Analysis of Foreign Aid and Income Inequality in Pakistan

Sharafat Ali and Najid Ahmad

MPRA Paper from University Library of Munich, Germany

Abstract: Pakistan economy is one of those economies that has received a huge amount of foreign aid. Foreign aid has been considered to help capital-deficient economies to fulfill the desired levels of finances to generate growth, increase employment and income, and furthermore, it helps to alleviate poverty levels in the recipient economies. Present study focuses on the analysis of impact of foreign aid on income inequality in Pakistan. Since time series data is used for the analysis so the ADF and Phillip-Perron unit root test are applied to find out each of the time series to be stationary at its first difference. Johansen contegration test and vector error correction models are employed to examine the long run and short run impacts of growth, foreign aid, foreign direct investment, and labor force participation rate on income inequality, respectively. The cointegration test results confirm negative impact of economic growth on income inequality whereas foreign aid, foreign direct investment and labor force participation rate are concluded to have inequality increasing impacts. The results are statistically significant.

Keywords: foreign aid; growth rate; foreign direct investment; labor force; stationarity; cointegration; causality (search for similar items in EconPapers)
JEL-codes: C22 E1 F35 O15 (search for similar items in EconPapers)
Date: 2013-07-31
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (4)

Published in Global Journal of Management and Business Research Economics and Commerce 13.5(2013): pp. 11-20

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48877

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