US aid is one of the assistance funds program run by USA under the umbrella of US Foreign Assistance program. The primary focus of the U.S. civilian-assistance program is to develop a stable, secure and tolerant Pakistan with a vibrant economy. Working with other U.S. agencies, as well as donors and international development partners, USAID has focused its program over the last year on five areas essential to Pakistan’s stability and long-term development and reflective of Pakistani priorities: energy, economic growth, stabilization, education and health.

1. US Aid from birth to
current position
International Relations
Ayesha Majid
LAHOORE SCHOOL OF ECONOMICS

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Table of Contents
Introduction............................................................................................................................................2
What is US aid?....................................................................................................................................2
Background of US aid..........................................................................................................................3
Which Countries Receive U.S. Foreign Assistance........................................................................5
How is Foreign Assistance Categorized?.........................................................................................5
Which Agencies Manage Foreign Assistance Funds?...................................................................5
1. U.S. Agency for International Development.........................................................................5
2. Peace Corps .............................................................................................................................6
3. U.S. Department of State........................................................................................................6
4. U.S. African Development Foundation..................................................................................6
5. Millennium Challenge Corporation ........................................................................................6
6. U.S. Department of Agriculture ..............................................................................................7
7. Inter-American Foundation .....................................................................................................7
8. U.S. Department of the Treasury...........................................................................................7
9. Department of Defense ...........................................................................................................7
10. Department of Health and Human Services ....................................................................7
Aid flows to Pakistan............................................................................................................................8
Data summary of US aid.................................................................................................................8
The political economy of aid flows to Pakistan..............................................................................10
Has Aid Been Successful? ...............................................................................................................10
Can Pakistan survive without US aid ..............................................................................................11
View of Pakistanis’ for us aid............................................................................................................13
Conclusion...........................................................................................................................................13
Corruption........................................................................................................................................15
References ............................................................................................................................................15

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Introduction
Foreign assistance is a fundamental component of the international affairs budget and
is viewed by many as an essential instrument of U.S. foreign policy. Since the end of
the Cold War, many have proposed significant changes in the size, composition, and
purpose of the program, several of which have been adopted. The focus of U.S.
foreign aid policy has also been transmuted since the terrorist attacks of September
11, 2001.
There are five major categories of foreign succour: bilateral development aid,
economic assistance supporting U.S. political and security goals, humanitarian aid,
multilateral economic contributions, and military aid. Since the recent implementation
of two new foreign aid initiatives — the Millennium Challenge Corporation and the
Global AIDS Initiative — bilateral development assistance has become the largest
category of U.S. aid.
The Pakistani government has planned to take $33.7 Billion in Foreign Aid for Fiscal
Year 2016. The stance of Pakistani governments over U.S. assistance has changed
over time especially because of change of leadership. Every political leader in
Pakistan has his own views, stance and agenda over how to tackle and interpret U.S.
assistance.
What is US aid?
'U.S. Agency for International Development - USAID' An independent federal agency
of the United States that provides aid to citizens of foreign countries. Types of aid
provided by USAID include disaster relief, technical assistance, poverty alleviation
and economic development.’
US aid is one of the assistance funds program run by USA under the umbrella of US
Foreign Assistance program.
The primary focus of the U.S. civilian-assistance program is to develop a stable,
secure and tolerant Pakistan with a vibrant economy.
Working with other U.S. agencies, as well as donors and international development
partners, USAID has focused its program over the last year on five areas essential to
Pakistan’s stability and long-term development and reflective of Pakistani priorities:
energy, economic growth, stabilization, education and health.

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Over the last year, USAID has streamlined the number of projects from
approximately 150 to less than 70
and has also chosen to implement
over half of all funding through local
organizations in Pakistan – both
government and non-government.
Supporting the civilian government’s
capacity to meet the needs of its
citizens is a vital element of USAID’s
program, as is working with non-
governmental organizations and the
private sector.
“Today, the U.S. manages foreign
assistance programs in more than
100 countries around the world
through the efforts of over 20
different U.S. Government agencies.
These investments further America's
foreign policy interests on issues
ranging from expanding free
markets, combating extremism,
ensuring stable democracies, and addressing the root causes of poverty, while
simultaneously fostering global good will.” (ForeignAssistance.gov, n.d.)
Background of US aid
The first U.S. aid program took shape after World War II when then Secretary of State
George Marshall acted to provide significant aid to Europe after the war to assist the
continent in rebuilding its infrastructure, strengthening its economy, and stabilizing the
region. This led to the creation of several foreign assistance programs in subsequent
years to build off the success of the Marshall Plan. The next milestone for foreign
assistance occurred in 1961, when President Kennedy signed the Foreign Assistance
Act in law and created the United States Agency for International Development
(USAID). This marked a significant increase in U.S. foreign assistance efforts and
USAID became the first U.S. foreign assistance agency whose primary focus was
long-term global development to include economic and social progress.
A growing literature in political economy suggests that development aid is determined
by the economic and political interests of powerful interest groups within donor
countries. This perspective on aid was first suggested in the debate on donor interests
versus recipient needs which was largely based on an empirical cross-country analysis
of the geographical allocation of aid resources to different countries (e.g. McKinley

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1978, McKinley and Little 1979, Maizels and Nissanke 1984, Boone 1996, Trumbull
and Wall 1994, Alesina and Dollar 2000, Berthélemy and Tichit 2002). Other authors
have provided political economic explanations for the functioning of aid agencies and
for the use of specific aid instruments (see e.g. Vaubel 1991, Frey 1991, 1997, and
Martens at el. 2002, Easterly 2002, Michaelowa 2003, Dreher 2003, 2004, Hefeker
and Michaelowa forthcoming). Most recently, Lahiri and Raimondos-Møller (1997,
2000) as well as Mayer and Raimondos-Møller (2004) have suggested theoretical
models explaining specific decision making processes in the donor country.
Looking at the United States as the single most important bilateral donor, we draw
upon earlier analyses of the effect of lobbying on congressional decision making.
Numerous studies, like Coughlin (1985), Tosini and Tower (1987), Harper and Aldrich
(1991), Marks (1993) and Baldwin and Magee (1998) empirically tested the hypothesis
of domestic lobbies affecting congressional voting behaviour with respect to US trade
policy. A more recent study by Gawanda et al. (2004) also includes the effect of lobbies
working for foreign principals, e.g., for foreign governments and foreign business
groups. Anecdotal evidence suggests that similar effects might govern US decision
making with respect to aid to Pakistan. Pakistani officials allegedly complained that
India was lobbying to block US aid to Pakistan.
“US business interests and ethnic lobbying cannot fully be disentangled due to the
high correlation between these variables. In any case, evidence for ethnic lobbying is
rather strong for the Pressler Amendment in 1985 as well as for the Brown Amendment
in 1995. Both of these greatly influenced US development cooperation with Pakistan”
(Mumtaz Anwar , Katharina Michaelowa, 2004)
The barrage of writing and analysis that has appeared since the killing of bin Laden in
Pakistan has underscored this point, with such words as “duplicity” and “double game”
being used extensively by U.S. analysts and policymakers alike.
It would be in the interest of the United States to ensure a stable Pakistan, with a
liberal, democratic government focused on development. One could reasonably
expect that the civilian government of Pakistan has similar objectives. However, the
relationship has been so fraught with cross-purposes and doublespeak that the real
purpose of U.S. aid to Pakistan in the post-9/11 era is no longer clear— from either
country’s perspective. Of course, the United States wants Pakistan to prosecute the
war on terrorism and help defeat al-Qaeda and the Taliban insurgency in Afghanistan
as well as in Pakistan. It also wants to help Pakistan develop into a stable, democratic
state at peace with itself and its neighbours. But until recently the primary recipient of
U.S. aid in Pakistan was the military and its Inter-Services Intelligence Directorate
(ISI). U.S. cooperation, therefore, has strengthened the very actors—the Pakistani
security establishment—that have served the interests of neither Pakistan nor the
United States. It is time that policymakers in both countries rethink how this
relationship should proceed.
“In reality, the aid relationship between the United States and Pakistan has been
muddled, deceptive, complicated, and even dangerous, especially since the events of
September 11, 2001.” (Zaidi, 2011)

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Which Countries Receive U.S. Foreign Assistance
1. Israel
2. Afghanistan
3. Egypt
4. Jordan
5. Pakistan
6. Kenya
7. Nigeria
8. Tanzania
9. Ukraine
10. Uganda
11. India
12. Russia
13. Peru
14. Haiti
15. Georgia
How is Foreign Assistance Categorized?
1. Health
2. Peace and security
3. Democracy, human rights and governance
4. Economic development
5. Education and social service
6. Program management
7. Human assistance
8. Environment
9. Multi-sector
Which Agencies Manage Foreign Assistance Funds?
1. U.S. Agency for International Development
The U.S. Agency for International Development (USAID) is an
independent agency that provides economic, development, and
humanitarian assistance around the world in support of the
foreign policy goals of the United States.

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2. Peace Corps
As the official international service organization of the United
States, the Peace Corps gives Americans the opportunity to
become global citizens and serve their country by tackling the
most pressing needs of people around the world. Peace Corps
Volunteers live in their communities of service and work at the
grassroots level with host country governments, schools and entrepreneurs to
develop sustainable solutions that address challenges in areas like education,
health, economic development, agriculture and environment, and youth
development. They bring this experience and their skills, knowledge and ideas back
home with them to the United States, and the ripple effect of their global outlook
follows them wherever they go and enriches the lives of those around them.
3. U.S. Department of State
The mission of the State Department (DOS) is to advance
freedom for the benefit of the American people and the
international community by helping to build and sustain a more
democratic, secure, and prosperous world composed of well-
governed states that respond to the needs of their people,
reduce widespread poverty, and act responsibly within the
international system.
4. U.S. African Development Foundation
The U.S. African Development Foundation (USADF) is a U.S.
Government’s agency dedicated to promoting African-led
development. USADF grants of up to $250,000 provide capital
and local technical expertise to grassroots enterprises that
empower underserved communities to become a part of Africa’s
growth story.
5. Millennium Challenge Corporation
The Millennium Challenge Corporation (MCC) forms partnerships
with some of the world’s poorest countries who are committed to
good governance, economic freedom, and investments in their
citizens to reduce poverty through sustainable economic growth.

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6. U.S. Department of Agriculture
The United States Department of Agriculture’s (USDA) mission is
to provide leadership on food, agriculture, natural resources,
rural development, nutrition, and related issues based on sound
public policy, the best available science, and efficient
management.
7. Inter-American Foundation
The Inter-American Foundation (IAF) is an independent agency
working throughout Latin America and the Caribbean to support
citizen-led initiatives to help communities thrive. It prioritizes the
social, economic, and political inclusion of the region’s most
disadvantaged people, including: indigenous peoples, Afro-
descendants, women, young people, persons with disabilities,
and LGBTI groups.
8. U.S. Department of the Treasury
The mission of the U.S. Department of the Treasury is to
maintain a strong economy and create economic and job
opportunities by promoting the conditions that enable economic
growth and stability at home and abroad; strengthen national
security by combating threats to and protecting the integrity of
the financial system; and manage the U.S. Government’s
finances and resources effectively.
9. Department of Defense
The mission of the Department of Defense is to provide the
military forces needed to deter war and protect the security of the
United State
10. Department of Health and Human Services

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Aid flows to Pakistan
“Pakistan has historically been among the top recipients of US aid - since 1948, the
US has sent more than £30bn in direct aid to the country. Nearly half of this has been
for military assistance” (Sixty years of US aid to Pakistan: Get the data )
The U.S. civilian assistance program focuses on five priority sectors: increasing the
capacity and efficiency of the power sector to help Pakistan address the energy gap
that undermines its stability and growth; fostering private sector-led economic growth
and agriculture to help Pakistan increase economic opportunities for its growing
population; supporting stabilization efforts in regions susceptible to activity by violent
extremists, particularly on the border with Afghanistan; and increasing access to and
the quality of education and health care. Additionally, U.S. assistance efforts aim to
increase private sector trade and investment regionally and internationally; improve
infrastructure; and strengthen governance and services delivery with the long-term
mutual goal of helping Pakistan move beyond international assistance. Assistance to
improve governance, transparency, and gender equality are critical elements that
support all five sectors.
Security assistance will continue to build the counterinsurgency and counterterrorism
capabilities of Pakistan’s security forces and remains critical to enabling security in the
tribal areas and achieving progress on mutual security objectives, including efforts to
disrupt, dismantle, and destroy al-Qaeda. This assistance bolsters Pakistan’s ability
to provide security for its citizens – particularly along the Afghanistan-Pakistan border
– and encourages military-to-military engagement.
Lastly, as the United States withdraws its troops from Afghanistan, it is critical that the
U.S. Government’s assistance program funding levels reflects a continued robust
engagement of Pakistan and its role in the stability and prosperity of the region.
Data summary of US aid
Summary of US aid to Pakistan 1948-2010
Year Economic
Assistance,
Total
Economic
Assistance
(through USAID)
Military
Assistance,
Total
Coalition
Support
Funds
1948 0.77 0 0
1949 0 0 0
1950 0 0 0
1951 2.89 0 0
1952 74.25 73.55 0
1953 748.29 286.23 0
1954 156.95 152.24 0
1955 733.15 477.18 266
1956 1065.67 700.89 1086.5

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1957 1079.65 619.9 437.59
1958 968.22 589.59 533.13
1959 1367.93 985.25 366.81
1960 1689.84 1181.35 230.39
1961 989.53 780.04 260.47
1962 2334.65 1446.28 549.02
1963 2066.77 1063.68 292.31
1964 2222.66 1334.16 187.55
1965 1928.9 1041.58 77.38
1966 816.28 691.28 8.4
1967 1213.36 719.38 26.33
1968 1501.68 672.5 25.98
1969 541.76 504.31 0.5
1970 968.32 570.93 0.87
1971 474.25 31.21 0.73
1972 692.87 261.87 0.42
1973 715.35 387.63 1.24
1974 381.97 219.13 0.95
1975 614.34 326.02 0.92
1976 644.1 336.78 1.28
1977 319.16 209.4 0.92
1978 214.92 55.49 1.52
1979 128.81 23.31 1.2
1980 137.53 0 0
1981 164.16 0 0
1982 400.6 200.07 1.2
1983 534.18 383.29 499.77
1984 568.05 415.84 555.9
1985 607.26 447.53 583.53
1986 623.56 460.91 545.82
1987 599.07 469.53 534.54
1988 769.14 635 430.69
1989 559.72 421.27 367.06
1990 548.07 422.37 283.44
1991 149.59 141.78 0
1992 27.14 0.57 7.2
1993 74.19 7.98 0
1994 68.43 0 0
1995 23.13 10.1 0
1996 22.79 0 0
1997 57.17 0 0
1998 36.32 0 0

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1999 102.14 6.72 0.22
2000 45.72 0 0
2001 228.02 0.54 0
2002 937.34 744.74 1739.7 1386.06
2003 377.93 284.81 1760.23 1450.98
2004 406.12 316.56 891.39 794.11
2005 490.42 374.04 1397.06 1050.15
2006 689.43 488.46 1246.1 916.13
2007 688.62 498.91 1079.72 755.74
2008 614.48 392.05 1378.32 1014.9
2009 1353.65 1076.25 1114.26 685
2010 1867.13 1529.53 2524.61 1220.5
Note: All figures are in US$ (millions). Figures are adjusted for inflation
The political economy of aid flows to Pakistan
Foreign aid is more effective in areas with stable governments and political
environment.
“Get the fruitful result of foreign aid, firstly, by controlling the political imbalances in
recipient countries and secondly, recipient needs should be preferable as compared
to the donor’s own interest.” (Anwar, 2014)
Has Aid Been Successful?
Given the large sums of money that the United States has invested in aid to Pakistan,
assessing the success of these funds becomes critically important. What becomes
clear almost immediately is that counterterrorism assistance since 2002 has not
achieved the objectives of either the United States or Pakistan. In fact, it is not entirely
clear that the Pakistani military shares the objectives of the United States, even as it
receives billions in military aid. The United States has given Pakistan military aid
primarily to conduct military operations that support supposedly common
counterterrorism interests in the region. Whether the Pakistani military views the game
plan in the same way is a different matter.
Assessing the actual impact of U.S. aid is, of course, difficult. Military action has been
ongoing for the last decade, and the outcomes of both Pakistani and American actions
are hard to discern. Even if broad questions, such as whether al-Qaeda in the region
has been routed, could be answered, it would be almost impossible to assess to what
extent the Pakistani military furthered this objective and whether military aid had been
even partially effective. The killing of bin Laden by U.S. Navy SEALs a stone’s throw
from Pakistan’s main military academy has raised many troubling questions for

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Pakistan’s military high command and accentuates questions about Pakistan’s
broader role in the relationship with the United States and the use and impact of aid.
“By using its money more productively, lessening the waste caused by contractors and
bureaucracy, and improving links with Pakistani nongovernmental organizations, the
United States might see its money make a real, positive impact.” (Zaidi, 2011)
Since military aid has been two or three times as large as economic aid, the U.S.
government has strengthened the hand of the military in Pakistan’s political economy,
sidestepping the elected civilian government because there is more trust in the ability
of the Pakistani military. This has been a missed opportunity to strengthen and support
democratic movements and institutions. The change in the relationship since 2009
might be able to reverse this balance.
Can Pakistan survive without US aid
Several policy-makers, politicians, and development professionals in the west believe
that the economic survival of Pakistan rests on handouts from the United States. Often
American legislators ridicule Pakistan for willingly accepting American dollars in
charity, but not delivering on American demands in return.
The British newspaper Guardian maintains an active database documenting six
decades of American aid to Pakistan. The data is compiled by Wren Elhai of the
Center for Global Development in Washington, DC. The database reveals that since
1948 the US assistance to Pakistan has largely been for civilian purposes. Of the
$61.7 billion in total assistance (in constant 2009 dollars) provided to Pakistan
between 1948 and 2010, $40.4 billion were provided for economic assistance and
$21.3 billion in military assistance. The economic assistance to Pakistan peaked in
the early 60s when in excess of $2 billion annually were provided to Pakistan.
Title: US Aid to Pakistan, 1948-2010, (millions, constant 2009 US$)

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-Source: Guardian.
“Pakistan’s elite and middle class have to rise to the occasion to help resuscitate the
faltering economy. Pakistanis have to pay taxes so that their government can refuse
aid from others. Unless Pakistanis demonstrate the willingness to carry their own
weight by paying taxes, there is no hope of an honorable existence for Pakistan in the
community of nations.” (Haider, 2012)
The goals of US and its demands from Pakistan have continually changed over the
past and are expected to have further changes in future as can be seen in the picture.

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View of Pakistanis’ for us aid
Conclusion
Although certain additional political economic factors such as geopolitical
considerations have not even been considered here, the overall explanatory power of
the regression models used is relatively high. As political economic factors in the donor
country cannot be expected to be closely related to the actual needs of the recipient,
this raises difficult questions with respect to aid effectiveness and the efficiency of
funds invested in development cooperation. It remains an open question how the direct
interest of political decision makers in donor countries can be brought in line with the
objectives of actual development.
The United States is paying a high price for getting just enough in return to keep it
relevant and interested in continuing the aid, while reinforcing the military dominance
that continues to complicate American antiterrorism objectives. Though the United
States has received permission for drone attacks and NATO supplies, and occasional
intelligence support, true counterterrorism cooperation has been lacking, and drone
attacks and increasing violence infuriate ordinary Pakistanis. The Kerry-Berman-Lugar
bill is a step in the right direction, shifting the relationship away from the myopic focus
on the military and toward a more productive use of aid. Continuing this work will be a
long and torturous process, but in the long run will serve the interests of both the United
States and the Pakistani people, and it might just strengthen democracy in Pakistan.
The natives of America think that they are already giving to much aid but that’s not
true

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OPTIONAL DATA
Theoretical Framework This section provides the theoretical linkages of variables with
foreign aid with help of existing literature. When we check the impact of foreign aid on
corruption literature explains two effects i.e. liquidity and conditionality effect. Foreign
aid treated as a policy action of donors in perspective of a political economy. Foreign
aid is a lifeline for many countries to lead them to better living standards. Furthermore
foreign aid consists of economic, social, and political development of recipient
countries. But these objectives not fulfilled due to many reasons such as weak
institutions, political instability, self-interest, law and order situation become the major
obstacles in way of development of recipients.
Liquidity effect Foreign aid effects corruption through liquidity effect in such a way
that shortage in public revenues is assuages by foreign aid hence it will increase the
facilities and salaries for public employees this will lead to declining in supply of
corruption by public officials.
Figure 2: liquidity effect
Conditionality effect in many recipient’s aid comes with rules and condition or tied
aid for specific purposes this will show the conditionality effect of foreign aid. Choices
of recipient’s officials are limited when aid come with condition, furthermore these
conditions are very influential in aid effectiveness and reduction in corruption.
Foreign aid
Public
revenue
Salaries for
public
employees
Diminish
supply of
corruption

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Figure 3: conditionality effect
Corruption
Corruption when the impact of corruption on foreign aid is discussed, the results are
mixed. Some studies explain in what ways foreign aid effect corruption while other
explain the mechanism in which corruption effect aid e.g. positively correlation
between foreign aid and corruption is concluded by Ali &Isse (2003).They argue that
predatory power of the government strengthens by ODA, hence deteriorates the
emergence of private sector. Foreign aid typically increase the government
consumption, leads to creates opportunities to grow for government, this will lead to
increase in corruption. Isopi&Mattesini (2008) also supported this view by using a
game theoretic approach towards aid donations. They argue that foreign aid increase
corruption when local elite is preferred by donors. While corruption is a decreasing
function of aid if donors are motivated by recipient’s needs. Foreign aid covers the
high fraction of official revenues. One manifestation of foreign aid, in which corruption
effect the foreign aid through tax evasion. When government has lack of capacity or
willingness to collect official revenues this will raise the corruption.
References
(n.d.). Retrieved from ForeignAssistance.gov: http://beta.foreignassistance.gov/
Anwar, H. (2014, march). Political Economy of Foreign Aid: Evidence from Asian Countries. J. Glob. &
Sci. Issues, 2(1), 55.
Haider, M. (2012, Februrary 15). Can Pakistan survive without US aid?
Mumtaz Anwar , Katharina Michaelowa. (2004). The Political Economy of US Aid to Pakistan.
Hamburgisches Welt-Wirtschafts-Archiv (HWWA) Hamburg Institute of International
Economics .
Sixty years of US aid to Pakistan: Get the data . (n.d.). the guardian.
Zaidi, S. A. (2011, September 21). Who Benefits From U.S. Aid to Pakistan?
Foreign aid
Rules and
conditions
limit choices corruptions