Exploring the Nexus of Foreign Aid, Energy Production, Human Capital, and Income Inequality in Pakistan: A Time Series Analysis

Abstract

This study endeavors to investigate the intricate interplay between foreign aid, energy production, human capital, and income inequality in Pakistan. Drawing on annual time series data spanning from 1984 to 2017, the research employs the Johansen co-integration technique to explore the long-run relationships among these variables. The findings of the Johansen co-integration analysis reveal the presence of long-run co-integration among the variables under scrutiny. This implies that there exist stable, equilibrium relationships among foreign aid, energy production, human capital, and income inequality in the Pakistani context. In dissecting the long-run coefficients, the study unveils insightful dynamics regarding the impact of each variable on income inequality. Foreign aid and human capital emerge as significant factors contributing to a reduction in income inequality within Pakistan. These findings suggest that foreign aid inflows and investments in human capital development can serve as potent mechanisms for fostering more equitable income distribution in the country. Conversely, the analysis highlights a positive and statistically significant relationship between energy production and income inequality in Pakistan. This implies that an increase in energy production may exacerbate income disparities within the country. Such insights underscore the importance of carefully managing energy policies and ensuring equitable distribution of the benefits derived from energy resources to mitigate income inequality. Overall, these findings shed light on the complex socio-economic dynamics shaping income inequality in Pakistan and underscore the potential policy levers that can be leveraged to address this pressing issue. By prioritizing investments in human capital development and leveraging foreign aid strategically, policymakers can work towards fostering a more inclusive and equitable socio-economic landscape in Pakistan. Additionally, prudent energy policies aimed at ensuring equitable access to energy resources can help alleviate income disparities and promote sustainable development in the country.