Effectiveness of foreign aid in the light of millennium development goal on the health sector: a case study of Pakistan

Most of the developing countries are becoming more aid dependent with the passage of time. This bleak reality provokes debate on aid effectiveness. This paper analyzes the effectiveness of aid on the health sector of Pakistan over the period 1973-2008. The study focuses on the health sector in the light of Millennium Development Goal; reducing child mortality. We estimate an econometric model to test the short and long run relationship between foreign aid and infant mortality rate in the health sector. In this context, different tests i.e. Augumented Dickey Fuller test, Johansen Likelihood Ratio test and Vector Error Correction Method are used. The results indicate that there is short run and long run relationship between foreign aid and infant mortality rate. The results show that one percent increase in foreign aid will decrease the infant mortality rate by 0.4 percent. This study suggests that an increase aid in this sector will result in better health conditions.