Impact of Foreign Aid on Economic Development in Pakistan [1960–2002]

The Two-Gap Model identifies foreign resources as essential for developing countries seeking to fill the import-export gap and savings-investment gap. This paper analyses the impact of foreign aid on economic development in Pakistan over the period 1960–2002, examining the contribution of multiple aid categories — FDI, external loans and credit, technical assistance, and project and non-project aid — to GDP growth, investment, and structural transformation. The study interrogates the aid-effectiveness debate in the Pakistani context, assessing whether aid inflows over four decades contributed to sustainable development or generated dependency without structural change. The spatial distribution of total aid disbursements over 1952–2002 is also documented and analysed.