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Abstract

AbstractThere have been several fluctuations in US Aid inflows to Pakistan throughout the country's inception; The Cold War, involving the US and the Soviet Union and the Russian invasion in Afghanistan in 1979, and then the events of 9/11 (War against Terrorism), were major global phenomena which were shaping US' foreign policy towards Pakistan, depending upon the perceived geopolitical significance of Pakistan for the US. Such volatility of Foreign Aid may have serious outcomes for the recipient country in form of lack of sustainability of economic growth & the external sector of the economy. This paper tries to assess the importance of various supply side (US) factors regarding Aid giving; strategic importance of Aid recipient with regard to Geopolitics of International relations, US political regime, trade openness of recipient, etc. Two competing econometric modeling choices were employed namely the Prais- Winsten and the Distributed lag models, so that to comprehensively validate the intensity of the impact of the above mentioned supply side factors of US bilateral Aid to Pakistan. After obtaining Durbin-Watson and Breush-Pagan estimates, it was inferred that the estimated models were free from any significant serial correlation and heteroskedasticity, respectively. It is found that geopolitical importance of Pakistan with regards to the Geopolitics of International relations, the US political regime and the trade openness of Pakistan are among the significant factors determining the size of bilateral Aid from US. However, the recipient regime proved to be insignificant.