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The Role of Political Regimes in the Macroeconomic Effectiveness of Foreign Aid in Pakistan

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  • Muhammad Luqman
  • Mirajul Haq
  • Karim Khan

Abstract

This study is an attempt to analyze the role of political regimes in the effectiveness of foreign aid. In particular, we focus on the role of foreign aid in economic growth under democratic regimes. The empirical exercise is based on time-series data of the Pakistan economy over the period 1972–2011. To meet the objective of the study, an interactive term of democratic regime and foreign aid is used as a regressor in the growth equation. Our findings show that democratic regimes are harmful in the effectiveness of foreign aid as far as the economic growth of Pakistan is concerned. Moreover, the study suggests diminishing returns to scale of foreign aid as the assumption of a linear relationship between foreign aid and economic growth is relaxed. The other control variables such as physical capital and human capital enter the model in a significant way and with their expected signs in both the short and the long run. JEL Classification : F34, O4, O11, O43

Suggested Citation

  • Muhammad Luqman & Mirajul Haq & Karim Khan, 2015. "The Role of Political Regimes in the Macroeconomic Effectiveness of Foreign Aid in Pakistan," South Asian Journal of Macroeconomics and Public Finance, , vol. 4(1), pages 118-137, June.
    • Handle: RePEc:sae:smppub:v:4:y:2015:i:1:p:118-137
    DOI: 10.1177/2277978715574619
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    More about this item

    Keywords

    The effectiveness of foreign aid; economic growth; democratic regimes;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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