TESTING THE JOINT IMPACT OF FOREIGN AID AND FOREIGN DIRECT INVESTMENT ON OVERTIME ECONOMIC GROWTH OF PAKISTAN

Abstract

Foreign aid (FA) and foreign direct investment (FDI) a phenomenon of cold war in the post world war-II arena. The dollar recipient countries utilized these funds to augment their developmental activities, curtail balance of payment distortions, enhance the pace of economic growth etc. However, this study was, mainly, devised to check the joint effect of FA and FDI on overtime economic growth of Pakistan. In this regard, time series data over the period 1975-2010 including different support variables i.e. labor force and investment along with target indicators were rendered in the model for the assessment of relationship empirically. Moreover, properties of the data were, properly, diagnosed prior to employ ARDL estimation approach introduced by, Pesaran, and Shin (2000). The study found a robust and direct positive relationship between economic inflow of foreign capital and economic performance indicators, the inflow include foreign aid and FDI. However, the magnitude of foreign aid impact was explored considerably low as compared to FDI. In the end, it is suggested that though impacts of capital inflows are positive but economies must rely upon the indigenous resources to promote development rather depending on external factors