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Foreign Aid-Blessing or Curse: Evidence from Pakistan


  • Muhammad Arshad Khan

    (Pakistan Institute of Development Economics, Islamabad.)

  • Ayaz Ahmed

    (Pakistan Institute of Development Economics, Islamabad.)


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.

Suggested Citation

  • Muhammad Arshad Khan & Ayaz Ahmed, 2007. "Foreign Aid-Blessing or Curse: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(3), pages 215-240.
  • Handle: RePEc:pid:journl:v:46:y:2007:i:3:p:215-240

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    References listed on IDEAS

    1. World Bank, 2003. "Lifelong Learning in the Global Knowledge Economy : Challenges for Developing Countries," World Bank Publications, The World Bank, number 15141.
    2. Richard ANKER & Igor CHERNYSHEV & Philippe EGGER & Farhad MEHRAN & Joseph A. RITTER, 2003. "Measuring decent work with statistical indicators," International Labour Review, International Labour Organization, vol. 142(2), pages 147-178, June.
    3. Luiz de Mello & NaƩrcio Menezes Filho & Luiz G. Scorzafave, 2006. "Improving Labour Utilisation in Brazil," OECD Economics Department Working Papers 533, OECD Publishing.
    4. Zafar Mueen Nasir, 2005. "An Analysis of Occupational Choice in Pakistan: A Multinomial Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(1), pages 57-79.
    5. Zeba A. Sathar & Cynthia B. Lloyd, 1994. "Who Gets Primary Schooling in Pakistan: Inequalities among and within Families," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(2), pages 103-134.
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    Cited by:

    1. Ahmed, Vaqar & Wahab Siddiqui, Abdul, 2010. "Nexus between aid and security: the case of Pakistan," MPRA Paper 29310, University Library of Munich, Germany.
    2. Usman Qamar Sheikh & Muhammad Zafar Iqbal & Hafiz Khalil Ahmad, 2016. "The Impact of Foreign Aid, Energy Production and Human Capital on Income Inequality: A Case Study of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(1), pages 1-9, March.
    3. Muhammad Javid & Abdul Qayyum, 2011. "Foreign Aid and Growth Nexus in Pakistan: The Role of Macroeconomic Policies," PIDE-Working Papers 2011:72, Pakistan Institute of Development Economics.

    More about this item


    Foreign Aid; Economic Growth; FDI; Cointegration;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development


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