Foreign aid, domestic saving and economic growth in retrospect : the case of Pakistan (1960 to 1988)
This study focuses on the relationships between foreign aid, domestic saving and economic growth in Pakistan between 1960 and 1988. The relationship between foreign aid and domestic saving is extensively analysed, and it is argued that there is no direct one-to-one measurable relationship between them because of unquantifiable social, political, and institutional factors. The analysis concludes that at times political rather than economic criteria were used by donors for giving aid, and that the failure to adequately emphasise economic criteria was the cause of the low rate of domestic saving in Pakistan. Statistical analysis provides positive, but not significant co-efficients of correlation between the current values of foreign aid and economic growth. Analysis of the structure of GDP shows that the major part of GDP growth consisted of expansion of services, which included an overwhelming expansion of 'unproductive' services, such as public administration and defence. These activities were largely financed by foreign aid. The study also considers the persistent balance of payments deficit and mounting debt service obligations, and it concludes that to maintain high rates of growth in future calls for strenuous mobilisation of large amounts of domestic resources for productive investment.