Published March 25, 2023 | Version v1
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Foreign Aid and its Impact on Afghanistan's Economic Setup: Purposes and Implications

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  • 1. Kardan University

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The notion that foreign aid harms recipient governments' economic autonomy and undermines citizens’ trust in political institutions and actors remain prevalent and paradoxical. The fact that foreign aid has come to mean development assistance has raised a series of questions that have been debated in the scholarly literature. Moreover, it is universally acknowledged that donors use aid to achieve objectives other than development and poverty reduction. This study assesses the impact of foreign aid on the economic autonomy of different regimes (2001–2021) in Afghanistan. The study opines that foreign aid supported economic growth and the longevity of the Afghan government. However, on the other hand, both on-budget and off-budget foreign aid funding had several ripple effects. This study offers a comparative analysis of foreign aid in the Karzai and Ghani era; and explores the knock-on economic implications of aid dependency in Afghanistan. The comparative analysis of regimes in the post-9/11 context illustrates that stringent conditions were attached to aid granted to the Ghani administration compared to the Karzai administration. The study has found that US aid has undermined the economic setup in Afghanistan. However, the leverage of US aid to influence decision-making is minimal. Afghanistan's strategic calculation and policy-making are determined by regional security conditions rather than US influence. Furthermore, it is pertinent to note that since 2014, a significant decrease in US aid has been witnessed due to divergence between the two states. The significance of assistance in US foreign policy towards Afghanistan is minimal. The study suggests that foreign aid projects harm institutional trust by lowering citizens' evaluations of government performance and administrative competence. Additionally, aid projects can incentivize rent-seeking behavior and hurt citizens' perceptions of political corruption. In mapping the future discourse on aid in Afghanistan, the current authorities need to be more oriented toward foreign aid. As a policy tool, support has not been confined to the roles that foreign and economic policy theorists have prescribed.

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