INVESTIGATING PUBLIC FISCAL BEHAVIOR AND FOREIGN AID: AN EMPIRICAL STUDY OF PAKISTAN

Abstract

The economic activity in Pakistan, like many other developing countries, is largely dependent on foreign aid. However, the benefits of foreign aid incurred by these countries depend on the way they use the aid. A major aspect of this is the fiscal policy of the government. This research studies the impact of foreign aid on the fiscal policy behavior of Pakistan and the resulting implications of that behavior. Secondary data has been taken from the years 1985-2014 for the purpose of this research. The methodology applied to this data is Autoregressive Distributed Lag Model (ARDL). From the research it was concluded that foreign aid has a negative impact on public borrowing and thus has a negative impact on the fiscal behavior of the government.