This study attempts to examine the impact of foreign aid and political regimes on inflation in Pakistan. The short run and long run dynamics of foreign aid along with key determinants of inflation are estimated by applying ‘Auto regressive Distributed Lag’(ARDL) methodology over the period 1960-2013. The long run relationship between variables of interest is strongly supported by the bound test and the Gregory Hansen structural break Cointegration test. The empirical findings show that political regimes positively contribute to inflation in both short run and long run where as foreign aid has an inflationary impact in the short run and hence is a cause but in the long run foreign aid is deflationary and hence works as a cure for the economy. The results further show that other important determinants of inflation like money supply, imported inflation positively where as exchange rate and imports negatively respond to inflation in Pakistan. Supervisor:- Dr Nasir Iqbal