Exploring the Interlinkages among Government Spending, Foreign Economic Assistance and Trade Openness for their Impacts of Economic Prosperity in Pakistan

Abstract

The determinants of economic prosperity vary across the countries depending on their economic, social, cultural and geographical characteristics. Reduction in poverty, unemployment, improved sanitation facilities, health, education and enforcement of law are the key elements of economic well-being in any state. However, to achieve the said goals and raise the living standards of the citizens, government spending particularly on social sector programs, foreign economic assistance and trade liberalization are key factors in all developing countries. Therefore, this study is designed to examine the interlinkages and direct as well as indirect effects of government spending on social sector programs, foreign economic assistance and trade openness on economic prosperity in Pakistan. Using ARDL technique, we have found that the direct impacts of foreign economic assistance and civil liberties on economic prosperity are negative while, government spending on social sector programs and trade openness are positively associated with economic prosperity. Moreover, the interactive terms of foreign economic assistance, trade openness and governance are positive, which indicate that foreign economic assistance can be a welfare promoting factor in the presence of trade openness and good governance in Pakistan.