The Nexus between Foreign Aid and Economic Growth of Pakistan

A Cointegration Analysis

Abstract

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There is extensive literature available that dissects the linkage between foreign aid and the growth of the economy. The key focus of the current study is to explore how aid received from foreign countries are linked with growth rate of Pakistan’s economy. The present study considers time series data from 1985 to 2019 and corelates the nexus of foreign aid and Pakistan’s GDP growth rate in the long as well as short run. The study examined one dependent variable which is GDP, and seven independent variables including official development assistance as foreign aid, population growth, inflation, trade, domestic saving, unemployment, and foreign direct investment by using ARDL method. Broad canvas of the foreign aid and growth rate nexus is the main limitation of the paper and other factors impacting economic growth could not be taken into consideration due to the non- availability of complete data. The results of the study conclude that foreign aid hurts the economic growth of Pakistan throughout the thirty-four years not only in the short run but in long run as well.