Foreign Aid and Conflict in Pakistan: An Empirical Analysis

Abstract

This paper examines the relationship between foreign aid and conflict in Pakistan. The country has witnessed many internal and external conflicts from 1961-2013, the period of analysis. By applying Heckman selection procedure, the study finds that aid increases conflict. Given the fungibility of aid, the results show that aid and military expenditure increase the probability of conflict and inflation, but decrease the probability of tax mobilisation. The paper concludes that strategic objectives of donors create rifts and insecurity in the recipient society which in turn increases military expenditure and arms import. It further reduces the capability to govern and reform.

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