The Impact of Foreign Aid on the Economic Growth of Afghanistan

Afghanistan is a war-affected and developing country and it is mostly dependent on foreign aid from the international communities to fulfill its developmental and non-developmental expendituresAfghanistan has been the recipient of substantial foreign funding from several global financial institutions during the past two decades.This thesis explores the relationship between foreign aid and economic growth in Afghanistan.Additionally, it investigates the impact of control variables such as remittances, gross domestic investment, and labor force participation on economic growth.Time series data from 2001 to 2020 are used in the study.To check if the data is stationary, the Augmented Dickey-Fuller test is used.The Autoregressive Distributive Lag (ARDL) model is used to see if there is a cointegration link between the factors being studied.The findings validate a persistent correlation between foreign aid, economic growth, remittances, employment rate, gross domestic investment, and terrorism.The findings demonstrate that foreign aid exerts a substantial and beneficial influence on Afghanistan's economic growth.Conversely, domestic investment and employment levels have a favorable but negligible impact on economic growth, both in the short-term and the long-term.Moreover, terrorism exhibits a detrimental and highly substantial correlation with the economic advancement of Afghanistan during the analyzed timeframe.