Impact of Foreign Aid on Fiscal Expansion: A Case study of Pakistan

Abstract

For developing nations, particularly Pakistan, the efficient impact of foreign aid on fiscal growth has been the subject of passionate and intense debate among researchers, although the relationship between foreign aid and public spending is still up for question. The primary goal of this research project is to determine how foreign aid affects fiscal expansion in Pakistan utilizing time series data for the years 1975 to 2020 and the ARDL methodology for the estimate of data variables. The study's findings showed that while foreign aid has an unfavorable effect on fiscal expansion in the short run, it has a progressive effect on it in the long run. The study presents the following recommendation to the government that government should adopt sound and concrete policies regarding the use of the foreign aid so that it could be beneficial in the future rather than a burden, while carrying out various developmental and non-developmental expenditures in the country.