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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.

Suggested Citation

  • Muhammad Javid & Abdul Qayyum, 2010. "Foreign aid-growth nexus in pakistan: role of macroeconomic policies," Economics Bulletin, AccessEcon, vol. 30(4), pages 1-31.
    • Handle: RePEc:ebl:ecbull:eb-10-00685
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    References listed on IDEAS

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    1. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
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    3. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, University Library of Munich, Germany.
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    5. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank.
    6. Rati Ram, 2003. "Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries," Kyklos, Wiley Blackwell, vol. 56(1), pages 95-110, February.
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    Citations

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    Cited by:

    1. Faheem Jehangir Khan, 2016. "The Aid Policy Network in Pakistan: An Actor-Network Analysis," PIDE-Working Papers 2016:140, Pakistan Institute of Development Economics.
    2. Ojiambo Elphas & Jacob Oduor & Mburu Tom & Wawire Nelson, 2015. "Working Paper 226 - Aid Unpredictability and Economic Growth in Kenya," Working Paper Series 2169, African Development Bank.
    3. Innocent .U. Duru & Bartholomew .O.N. Okafor & Millicent Adanne Eze & Gabriel .O. Ebenyi, 2020. "Foreign Aid and Economic Growth: Empirical Evidence from Nigeria," Growth, Asian Online Journal Publishing Group, vol. 7(1), pages 35-50.
    4. Michael Mitchell Omoruyi Ehizuelen & Meibo Huang, 2016. "Fostering Economic Development: Is External Finance Responsible for the Poor Economic Growth in Sub-Saharan Africa?," Global Economy Journal, De Gruyter, vol. 16(2), pages 313-347, June.
    5. Mohsin Khan, 2015. "An ascertainment of multi-sectorial programs for trade and aid between Pakistan and South Korea; challenges, opportunities and way forward," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 5(11), pages 240-251, November.
    6. Anam Tanveer & Muhammad Mehran Latif & Maryum Ziafat, 2019. "Role of Foreign Aid in Employment Generation: A Case Study of Pakistan," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 1(2), pages 103-112, December.
    7. repec:unu:wpaper:wp2012-07 is not listed on IDEAS
    8. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    9. Bwire, Thomas & Lloyd, Tim & Morrissey, Oliver, 2013. "Foreign Aid, Public Sector and Private Consumption: A Cointegrated Vector Autoregressive Approach," WIDER Working Paper Series 094, World Institute for Development Economic Research (UNU-WIDER).
    10. Olufemi Saibu, 2014. "Capital Inflow and Economic Growth Nexus in Nigeria: The Role of Trade Openness," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 6(6), pages 99-113, December.
    11. Lubaina Dawood & Khadija Karim & Gul Nagina & Niamatullah, 2020. "Idealist, Realist or Neo-Realist Financial Aid Donors to Pakistan," Technium Social Sciences Journal, Technium Science, vol. 10(1), pages 1-12, August.
    12. Ali, Wajid & Munir, Kashif, 2016. "Testing Wagner versus Keynesian Hypothesis for Pakistan: The Role of Aggregate and Disaggregate Expenditure," MPRA Paper 74570, University Library of Munich, Germany.
    13. Nasir, Muhammad & Rehman, Faiz Ur & Orakzai, Mejzgaan, 2012. "Exploring the nexus: Foreign aid, war on terror, and conflict in Pakistan," Economic Modelling, Elsevier, vol. 29(4), pages 1137-1145.
    14. Lubaina Dawood Baig & Sana-ur -Rehman, 2017. "Impact of Financial Aid Branding on Public Perception and Favourability," International Business Research, Canadian Center of Science and Education, vol. 10(11), pages 129-138, November.
    15. Kargbo, Philip Michael, 2012. "Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    16. Pervez Zamurrad Janjua & Malik Muhammad & Muhammad Usman, 2018. "Impact of Project and Programme Aid on Economic Growth: A Cross Country Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(2), pages 145-174.
    17. Pierre E. Biscaye & Travis W. Reynolds & C. Leigh Anderson, 2017. "Relative Effectiveness of Bilateral and Multilateral Aid on Development Outcomes," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1425-1447, November.

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    More about this item

    Keywords

    economic growth; foreign aid; macroeconomic policies; ARDL; Pakistan;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F2 - International Economics - - International Factor Movements and International Business

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