The impact of foreign aid on the fiscal behavior of Asian LDC governments: a comment on Khan and Hoshino (1992)

Khan and Hoshino (1992) analyze public sector fiscal behavior in the presence of foreign aid using data for five South and Southeast Asian countries. This paper first questions a critical hypothesis test on which Khan and Hoshino's conclusions depend. It then extends Khan and Hoshino's analysis, making explicit both the direct and indirect effects of aid contained within their fiscal response model. It argues that a number of Khan and Hoshino's conclusions do not hold in the context of this representation.