Impact of Foreign Aid on Fiscal Behaviour: A Case Study of Pakistan (1980-2000)
Abstract
Economists have been trying to study the linkages between aid inflow and government activities in developing countries. With the passage of time, the analysis has become more sophisticated. The development of two-gap models [for example, Chenery and Bruno (1962); and Chenery and Adelman (1966), among others] was an important contribution to the literature. More recently, two-gap models have been extended into three-gap models. Iqbal (1995) added a fiscal constraint to the traditional saving and foreign exchange gap. In such cases, the fiscal constraint is intended to reflect potential limitations to finance public investment that may be required to support a given level of output.
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