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Foreign Aid and Government's Fiscal Behaviour in Nepal: An Empirical Analysis

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  • Bhattarai, Badri Prasad

    (School of Economics and Finance, University of Western Sydney, Parramatta Australia)

Abstract

Using the cointegration technique, this paper examines the revenue and expenditure behaviour of the Nepalese government in the presence of foreign aid for the period 1975–2002. The results show that aid positively affects both development and non-development expenditure in the long run. However, the long-run relationship between aid and non-development expenditure is found to be stronger than that between aid and development expenditure. Since aid is generally given for development expenditure, these results indicate the possibility of diversion of aid to non-development expenditure. Thus, the long-run relationship between aid and non-development expenditure may indicate aid fungibility. On the other hand, no evidence is found in favour of the hypothesis that aid availability makes the government lazy in terms of domestic revenue mobilisation.

Suggested Citation

  • Bhattarai, Badri Prasad, 2007. "Foreign Aid and Government's Fiscal Behaviour in Nepal: An Empirical Analysis," Economic Analysis and Policy, Elsevier, vol. 37(1), pages 41-60, March.
    • Handle: RePEc:eee:ecanpo:v:37:y:2007:i:1:p:41-60
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    Citations

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    Cited by:

    1. Rabia Butt & Attiya Yasmin Javid, 2013. "Foreign Aid and the Fiscal Behaviour of Government of Pakistan," PIDE-Working Papers 2013:96, Pakistan Institute of Development Economics.
    2. Poudel, Ghanshyam & Hellmann, Andreas & Perera, Hector, 2014. "The adoption of International Financial Reporting Standards in a non-colonized developing country: The case of Nepal," Advances in accounting, Elsevier, vol. 30(1), pages 209-216.
    3. Arvin, B. Mak & Kayani, Zafar, 2009. "Donor Motivation of Inter-Temporal Foreign Assistance to Nepal," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 5(1-2), pages 1-10, March.
    4. Muhammad, Fidlizan & Abdul Razak, Azila & Mohd Hussin, Mohd Yahya, 2015. "Kesan Bantuan Kewangan Luar terhadap Indikator Pembangunan di ASEAN: Analisis Panel," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 49(1), pages 61-70.
    5. Muntasir Murshed, 2019. "An Empirical Investigation of Foreign Financial Assistance Inflows and Its Fungibility Analyses: Evidence from Bangladesh," Economies, MDPI, vol. 7(3), pages 1-25, September.

    More about this item

    Keywords

    Aid; Development; Expenditure; Foreign Aid; Government;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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