The Effect of U. S. Assistance on Public and Private Expenditures in Pakistan: 1960-1988

Nasir M. Khilji, Ernest M. Zampelli


The Gulf crisis and the suspension of U. S. bilateral
assistance to Pakistan for 1990 threaten to have profound economic and
political consequences for the . country. These developments are bound
to further exacerbate the traditional Balance of Payments difficulties
and the unemployment problem in the short run, and possibly the future
long-run economic growth of the country. The termination of U. S.
assistance for this year is more a reflection of the changing realities
of the world today, rather than the alleged temporary measure by the U.
S. designed to elicit Pakistan's cooperation in nuclear
non-proliferation. It is highly probable that future U. S. assistance to
Pakistan is going to be curtailed and is likely to be on more stringent
terms than before.l In such circumstances, an essential question that
needs to be answered is that will a reduction in U. S. military and
non-military assistance to Pakistan affect significantly its defense
capabilities and/or weaken its economy?" Clearly, any objective answer
requires an understanding of how the allocation of resources by Pakistan
among defense, public non-defense, private investment, and private
consumption goods and services is affected by U. S. foreign aid. It is
only through this understanding that policy-makers in Pakistan can
formulate the requisite strategies to minimize the adverse impacts of
the reduction in U. S. assistance. This paper is a step toward
furthering that understanding.

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