Defense Expenditure, Foreign Aid and Economic Growth of Pakistan

Abstract

This study is aimed to examine the impacts of defense expenditure and foreign aids on economic development of Pakistan by using time series type of data from 1972-2019.Data is collected from Word Development Indicator, economic survey of Pakistan and Word Bank, and some indexes are calculated by author. The multiple econometric techniques are applied as descriptive statistics, correlation and unit root test. Based on those results the regression technique of ARDL (Auto-Regressive-Distributed-Lag) is selected. The present study evaluates the foreign aid and defense expenditure relation with economic growth by the help of other control variables as the labor employment rate, gross fixed capital formation, health index, education index and political index. The conducted study concluded that defense expenditure and foreign aid has negative and significant impact on economic development of Pakistan in the long run while for the short run the defense expenditure influence positive but insignificantly and foreign aid has negative impact and insignificant outcome. From the policy perspective, the spare defense projects and corruption in the case of aid should be replaced by development projects, it may help to increase the economic growth of Pakistan.