Article The Role of Political Regimes in the Macroeconomic Effectiveness of Foreign Aid in Pakistan Muhammad Luqman Mirajul Haq Karim Khan Abstract This study is an attempt to analyze the role of political regimes in the effectiveness of foreign aid. In particular, we focus on the role of foreign aid in economic growth under democratic regimes. The empiri- cal exercise is based on time-series data of the Pakistan economy over the period 1972–2011. To meet the objective of the study, an inter- active term of democratic regime and foreign aid is used as a regressor in the growth equation. Our findings show that democratic regimes are harmful in the effectiveness of foreign aid as far as the economic growth of Pakistan is concerned. Moreover, the study suggests diminishing returns to scale of foreign aid as the assumption of a linear relationship between foreign aid and economic growth is relaxed. The other control variables such as physical capital and human capital enter the model in a significant way and with their expected signs in both the short and the long run. South Asian Journal of Macroeconomics and Public Finance 4(1) 1–21 © 2015 SAGE Publications India Private Limited SAGE Publications Los Angeles, London, New Delhi, Singapore, Washington DC DOI: 10.1177/2277978715574619 http://smp.sagepub.com Muhammad Luqman is a Lecturer, Kashmir Institute of Economics, University of Azad Jammu & Kashmir, Muzaffarabad, India. E-mail: luqmanraja@gmail.com. Mirajul Haq is an Assistant Professor, International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan. E-mail: haqmirajeco@gmail.com. Karim Khan (corresponding author) is a Research Economist, Pakistan Institute of Development Economics, Islamabad, Pakistan. E-mail: karimpide@gmail.com. PE1 Plz check all Equation carefully at your end Muzaffarabad is in Pakistan Karim Khan is Assistant Professor,