Foreign Aid and Economic Development: The Case of Pakistan

Abstract

Foreign aid plays an important role in the development of developing countries. However, loans and grants can have opposite impacts. This study evaluates the role of foreign aid on the development of Pakistan. The Autoregressive Distributed Lags Model (ARDL) is used for the empirical analysis. The results depicted that foreign aid has adverse effect on the development of Pakistan both in short run and long run. It is also found that in the short run the role of IMF is positive but insignificant. However, in the long run the role of IMF is positive and significant at 10% level for the economic development of the country. The research also proposes few alternative policy measures in order to minimize the dependency on the foreign economic assistance and encourages reliance on the internal resource generation.