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Foreign assistance and economic growth: evidence from Pakistan 1972 - 2010

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  • Ahmed, Vaqar
  • Wahab, Mohammad Abdul

Abstract

This paper examines the relationship between foreign assistance and economic growth for the period 1972 to 2010. Past literature indicates that due to low domestic resource mobilization Pakistan had to resort to various forms of foreign assistance on a regular basis. Using time series data since 1972 and employing Johansen maximum likelihood procedure we show that foreign assistance in the absence of macroeconomic stabilization and structural reforms has a negative relationship with real per capita GDP. However national savings as percentage of GDP show a positive relationship with real per capita GDP. Pakistan has a long history of dependence on multilateral and bilateral development partners. Over the decades the share of grants as percentage of total foreign assistance has declined forcing the country to procure loans at harsh conditionalties. Given the positive impact of national savings on economic growth there is an urgent need for improving the tax base, promoting instruments that encourage savings culture in the private sector and attracting remittances from abroad. These increased savings would then have to be channelized towards productive investments which in turn require pro market reforms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30344.

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Date of creation: 02 Mar 2011
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Handle: RePEc:pra:mprapa:30344

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Keywords: Foreign assistance; Economic Growth; National Savings;

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References

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  1. Vaqar Ahmed & Cathal O'Donoghue, 2009. "Redistributive Effect of Personal Income Taxation in Pakistan," Working Papers 0143, National University of Ireland Galway, Department of Economics, revised 2009.
  2. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
  3. Alberto Chong & Mark Gradstein & Cecilia Calderon, 2009. "Can foreign aid reduce income inequality and poverty?," Public Choice, Springer, vol. 140(1), pages 59-84, July.
  4. Ahmed, Vaqar & Wahab Siddiqui, Abdul, 2010. "Nexus between aid and security: the case of Pakistan," MPRA Paper 29310, University Library of Munich, Germany.
  5. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  6. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, September.
  7. Naheed Z. Khan & Eric Rahim, 1993. "Foreign Aid, Domestic Savings and Economic Growth (Pakistan: 1960 to 1988)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 1157-1167.
  8. Boriana Yontcheva & Nadia Masud, 2005. "Does Foreign Aid Reduce Poverty? Empirical Evidence From Nongovernmental and Bilateral Aid," IMF Working Papers 05/100, International Monetary Fund.
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Cited by:
  1. Khalid Zaman & Bashir Khilji, 2014. "A note on pro-poor social expenditures," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(4), pages 2121-2154, July.

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