Synopsis of Term paper

The Impact of official Development Assistance (O.D.A) on Economic Growth of Pakistan

Supervisor Name: Prof Dr Mumtaz Anwar Ch. Waqas amir

Student Name:

MBEcon sem 4th Roll No: Session: 2010-12

Department of Economics University of the Punjab, Lahore.

Introduction:
Foreign aid is usually associated with official development assistance, which in turn is a subset of the official development finance, and normally targeted to the poorest countries (World Bank, 1998). If ODA is effective, it should lead to a transfer of real resources to a developing-country and these resources should contribute to improved human development and enhanced prospects for domestic capital accumulation and sustained economic growth. How does foreign aid affect the economic growth of developing countries? This is a question which has drawn the attention of many scholars over time. In case of Pakistan, the foreign aid is a major form of the foreign capital inflow and has a significant role for the countrys economic development. The FDI, ODA, portfolio investment and borrowing through private sources have increased sharply So, Pakistan has to rely on foreign aid.

Objectives of the Study:

A theoretical and empirical analysis of the impact of official development assistance on the economic growth of Pakistan.

Methodology and Data:

The empirical specification of the model can be written as given below,

Y = 0 + 1K + 2L + 3 ODA + e
Where, .Y = GDP K = Capital stock L = Labor force ODA= Official development assistance e = disturbance term. A time series data from 1980 to 2011 for Pakistan will be used for this analysis. The annual data will be obtained from World development indicators (WDI) and International financial statistics (IFS). The ordinary least square test will be performed for the analysis.

A Brief Literature Review:

The role of foreign economic assistance in economic development and growth remains contentious in economic literature. Some studies proved its positive impact on the economic development empirically, while some studies highlighted its negative effects as well. As Chenery and Strout (1966) concluded, on the basis of empirical evidence from LDCs, that foreign capital has a positive effect on the economic growth. Afterwards some other studies also argued that foreign economic assistance stimulate the economic growth. However, some other economists like Leff (1969) and Griffin (1970) have analyzed its negative impacts on growth. They argued that the Foreign aid could adversely affect the economic growth by substituting the domestic savings. So, the literature on effectiveness of foreign aid shows both, positive as well as the negative effects, of foreign aid on the economic growth.

Key References:
1. Ghulam Mohey-ud-din [1960-2002] Impact of Foreign Aid on Economic Development in Pakistan. 2. Mahmood, Azhar (1997). The Role of Foreign Aid in Economic Development Of Pakistan 3. Chenery and Strout (1966) 4. Leff (1969) 5. Griffin (1970)