Foreign Aid, Governance and Human development Nexus: An empirical analysis from Pakistan

Abstract

 The study analyses the impact of foreign aid on Human development and governance in case of Pakistan by employing ADRL approach, by keeping in view the current debate on effectiveness of foreign aid in the recipient countries. Time series data for a period from 1985 to 2023 is used. To measure the quality of governance an index has been developed with three indices of corruption, bureaucratic quality and the rule of law in Pakistan. After controlling for other factors, the study finds that foreign aid has positive impact on HDI in Pakistan. Conversely, aid has a negative impact on governance in Pakistan which implies that aid dependence is deteriorating the quality of governance in Pakistan, by increasing corruption, less fear of accountability among the ruling elites and government personnel. Findings of the study suggest two lessons for policy makers. First, aid should effectively be used for achieving the higher levels of Human development in Pakistan. Second, aid may be effective in improving the quality the quality of governance in Pakistan.