Empirical Analysis of the Extended Solow Model and Foreign Aid in Pakistan's Economy

Abstract

Foreign aid has a crucial role in helping countries develop, particularly in underdeveloped nations like Pakistan. The Solow model is a widely recognized framework used to study the relationship among foreign aid and economic growth. This model serves as a theoretical basis for comprehending the impact of foreign aid on the gathering of physical and human capital, as well as technological advancements. This study seeks to explore the connection among foreign aid and economic progress in Pakistan through the Solow model. The research employs time series data spanning from 1980 to 2021 and employs the Ordinary Least Square method to analyze the data. According to the research, Pakistan's economic growth is negatively correlated with foreign help. In addition, the study reveals a positive relationship between the labor force and effective labor with economic growth in Pakistan.