IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v3y2023i6d10.1007_s43546-023-00475-8.html
   My bibliography  Save this article

Estimating aggregate economic rate of return to foreign aid in Pakistan

Author

Listed:
  • Muhammad Arshad

    (Ministry of Economic Affairs)

  • Sana Hameed Pasha

    (Ministry of Economic Affairs)

  • Naeem Akram

    (Ministry of Economic Affairs)

  • Nadia Hussain

    (Ministry of Economic Affairs)

Abstract

The effectiveness of foreign aid is a highly debated issue in the economic literature. It was argued that foreign aid makes countries dependent on it and is ineffective, and the negative impacts of aid outweigh its positive role. A contrasting argument is that foreign aid has helped different economies in their economic development. Taiwan, Israel, and South Korea are some examples of success stories that signify that aid is a crucial and essential ingredient in the process of economic development. Given the importance of aid effectiveness, the present study has attempted to calculate the rate of returns to foreign aid in Pakistan by using data for the period 1960–2020 and using the generalized method of moments (GMM) technique. The study calculated that foreign aid plays a positive role in the economic development of Pakistan and the rate of return on foreign aid is 10–14% in different specifications. It is suggested that before accepting any new loan, its rate of return must be calculated. Development activities such as conducting feasibility studies and other pre-investment analyses should be financed either from foreign grants or from internal sources.

Suggested Citation

  • Muhammad Arshad & Sana Hameed Pasha & Naeem Akram & Nadia Hussain, 2023. "Estimating aggregate economic rate of return to foreign aid in Pakistan," SN Business & Economics, Springer, vol. 3(6), pages 1-19, June.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00475-8
    DOI: 10.1007/s43546-023-00475-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-023-00475-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-023-00475-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pedrosa-Garcia, Jose Antonio, 2017. "Trends and Features of Research on Foreign Aid: A Literature Review," MPRA Paper 82134, University Library of Munich, Germany.
    2. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    3. Muhammad Ali & Abiodun Egbetokun & Manzoor Hussain Memon, 2018. "Human Capital, Social Capabilities and Economic Growth," Economies, MDPI, vol. 6(1), pages 1-18, January.
    4. Graham Bird & Dane Rowlands, 2007. "The IMF and the mobilisation of foreign aid," Journal of Development Studies, Taylor & Francis Journals, vol. 43(5), pages 856-870.
    5. Claude Diebolt & Ralph Hippe, 2019. "The long-run impact of human capital on innovation and economic development in the regions of Europe," Applied Economics, Taylor & Francis Journals, vol. 51(5), pages 542-563, January.
    6. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    7. Carl-Johan Dalgaard & Henrik Hansen, 2017. "The Return to Foreign Aid," Journal of Development Studies, Taylor & Francis Journals, vol. 53(7), pages 998-1018, July.
    8. Harb, Nermeen & Hall, Stephen G., 2019. "Does foreign aid play a role in the maintenance of economic growth? A non-linear analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 192-204.
    9. Mark McGillivray, 2003. "Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations," WIDER Working Paper Series DP2003-71, World Institute for Development Economic Research (UNU-WIDER).
    10. Aribah Aslam, 2020. "The hotly debate of human capital and economic growth: why institutions may matter?," Quality & Quantity: International Journal of Methodology, Springer, vol. 54(4), pages 1351-1362, August.
    11. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
    12. Tseday Jemaneh Mekasha & Finn Tarp, 2019. "A Meta-Analysis of Aid Effectiveness: Revisiting the Evidence," Politics and Governance, Cogitatio Press, vol. 7(2), pages 5-28.
    13. Yulia Gruzina & Irina Firsova & Wadim Strielkowski, 2021. "Dynamics of Human Capital Development in Economic Development Cycles," Economies, MDPI, vol. 9(2), pages 1-18, May.
    14. Channing Arndt & Sam Jones & Finn Tarp, 2016. "What Is the Aggregate Economic Rate of Return to Foreign Aid?," The World Bank Economic Review, World Bank, vol. 30(3), pages 446-474.
    15. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-279, July.
    16. Ahamed Lebbe Mohamed Aslam & Sabraz Nawaz Samsudeen, 2021. "Dynamic inter-linkage between foreign aid and economic growth in Sri Lanka," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 39(2), pages 305-321, June.
    17. H.F. Campbell, 2009. "Measuring the contribution of education to labour productivity in a developing economy," International Journal of Education Economics and Development, Inderscience Enterprises Ltd, vol. 1(2), pages 156-165.
    18. Muhammad Azam & Yi Feng, 2022. "Does foreign aid stimulate economic growth in developing countries? Further evidence in both aggregate and disaggregated samples," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(2), pages 533-556, April.
    19. Wu, Harry X., 2013. "Measuring Industry Level Employment, Output, and Labor Productivity in the Chinese Economy, 1987-2008," Economic Review, Hitotsubashi University, vol. 64(1), pages 42-61, January.
    20. M. Adnan Kabir, 2020. "Foreign Aid Effectiveness: Evidence from Panel Data Analysis," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(3), pages 283-302, September.
    21. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alan S. Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2024. "Central Bank Communication with the General Public: Promise or False Hope?," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 425-457, June.
    2. Benjamin Born & Michael Ehrmann & Marcel Fratzscher, 2011. "How Should Central Banks Deal with a Financial Stability Objective? The Evolving Role of Communication as a Policy Instrument," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 9, Edward Elgar Publishing.
    3. Michael Pedersen, 2020. "Surveying the survey: What can we learn about the effects of monetary policy on inflation expectations?," Working Papers Central Bank of Chile 889, Central Bank of Chile.
    4. Yoshito Funashima, 2022. "Economic policy uncertainty and unconventional monetary policy," Manchester School, University of Manchester, vol. 90(3), pages 278-292, June.
    5. Jonne Lehtimäki & Marianne Palmu, 2022. "Who Should You Listen to in a Crisis? Differences in Communication of Central Bank Policymakers," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(3), pages 33-57.
    6. Marins, Jaqueline Terra Moura & Vicente, José Valentim Machado, 2017. "Do the central bank actions reduce interest rate volatility?," Economic Modelling, Elsevier, vol. 65(C), pages 129-137.
    7. Diaconescu Diana Raluca & Botezatu Hortensia Paula, 2015. "National Bank Of Romania Monetary Policy Transmission Mechanism During The Crisis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 327-333, April.
    8. Claus Brand & Daniel Buncic & Jarkko Turunen, 2010. "The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1266-1298, December.
    9. Bennani, Hamza, 2018. "Media coverage and ECB policy-making: Evidence from an augmented Taylor rule," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 26-38.
    10. repec:zbw:bofrdp:2020_017 is not listed on IDEAS
    11. Chen Yu-Fu & Funke Michael & Glanemann Nicole, 2013. "Off-the-record target zones: theory with an application to Hong Kong’s currency board," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(4), pages 373-393, September.
    12. Bernd Hayo & Ummad Mazhar, 2014. "Monetary Policy Committee Transparency: Measurement, Determinants, and Economic Effects," Open Economies Review, Springer, vol. 25(4), pages 739-770, September.
    13. Armantier, Olivier & Treich, Nicolas, 2013. "Eliciting beliefs: Proper scoring rules, incentives, stakes and hedging," European Economic Review, Elsevier, vol. 62(C), pages 17-40.
    14. Mink, Mark & de Haan, Jakob, 2013. "Contagion during the Greek sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 102-113.
    15. Harald Badinger & Volker Nitsch, 2019. "What Do Central Bankers Do? Evidence from the European Central Banks' Executive Board," CESifo Working Paper Series 7467, CESifo.
    16. Christophe Blot & Paul Hubert & Fabien Labondance, 2017. "Does monetary policy generate asset price bubbles ?," Documents de Travail de l'OFCE 2017-05, Observatoire Francais des Conjonctures Economiques (OFCE).
    17. Beckmann, Joscha & Czudaj, Robert L., 2023. "Perceived monetary policy uncertainty," Journal of International Money and Finance, Elsevier, vol. 130(C).
    18. Frederik Neugebauer, 2020. "ECB Announcements and Stock Market Volatility," WHU Working Paper Series - Economics Group 20-02, WHU - Otto Beisheim School of Management.
    19. Larsen, Vegard H. & Thorsrud, Leif Anders & Zhulanova, Julia, 2021. "News-driven inflation expectations and information rigidities," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 507-520.
    20. Paul Hubert & Fabien Labondance, 2016. "Central Bank Sentiment and Policy Expectations," Working Papers hal-03459227, HAL.
    21. Martin Baumgaertner & Johannes Zahner, 2021. "Whatever it takes to understand a central banker - Embedding their words using neural networks," MAGKS Papers on Economics 202130, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    Foreign aid; Economic development; Rate of returns;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00475-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.