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Foreign aid-growth nexus in pakistan: role of macroeconomic policies

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  • Muhammad Javid

    ()
    (Pakistan Institute of Development Economics (PIDE), Pakistan)

  • Abdul Qayyum

    ()
    (Pakistan Institute of Development Economics (PIDE), Pakistan)

Abstract

This study examines the effectiveness of aid, focusing on the ongoing debate on the interactive effect of aid and policy on sustainable economic growth. We disaggregate the total aid into bilateral and multilateral aid to examine the separate affect of these forms of aid on economic growth. The empirical analysis is based on the ARDL cointegration approach using the data for the period 1960 to 2008. Empirical findings suggest that foreign aid has no role in economic growth of Pakistan under the period reviewed. Based on the empirical results we find that foreign aid and real GDP has negative relationship while aid-policy interactive term and real GDP growth has positive and significant relationship. The interesting results emerge; when Aid/GDP alone is introduced into the growth equation it has insignificant positive coefficient in the long run and negative and weakly significant coefficient in the short run. Similar results obtained when we disaggregate aid in term bilateral and multilateral component. The results strongly support the view that foreign aid does have positive impact on economic growth in Pakistan conditional on sound macroeconomic policies.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 4 ()
Pages: A31

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Handle: RePEc:ebl:ecbull:eb-10-00685

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Keywords: economic growth; foreign aid; macroeconomic policies; ARDL; Pakistan;

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References

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  1. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  2. Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc.
  3. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  4. Rati Ram, 2003. "Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 56(1), pages 95-110, February.
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Cited by:
  1. Bwire, Thomas & Morrissey, Oliver & Lloyd, Tim, 2013. "Foreign aid, public sector and private consumption: A cointegrated vector autoregressive approach," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Nasir, Muhammad & Rehman, Faiz Ur & Orakzai, Mejzgaan, 2012. "Exploring the nexus: Foreign aid, war on terror, and conflict in Pakistan," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1137-1145.
  3. Kargbo, Philip Michael, 2012. "Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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