Its development began in 1975 as a further evolution of Northrop's F-5E Tiger II, featuring a new engine that greatly improved overall performance, and a modern avionics suite including a powerful and flexible radar.

With these improved capabilities, the F-20 became competitive with contemporary fighter designs such as the General Dynamics F-16 Fighting Falcon, but was much less expensive to purchase and operate.

FX was a product of the Carter administration's military export policies, which aimed to provide foreign nations with high quality equipment without the risk of US front-line technology falling into Soviet hands.

Northrop had high hopes for the F-20 in the international market, but policy changes following Ronald Reagan's election meant the F-20 had to compete for sales against aircraft like the F-16, the USAF's latest fighter design.

[3] As the Mikoyan-Gurevich MiG-21 became more common, the U.S. Air Force initiated the International Fighter Aircraft (IFA) program to provide an equivalent to allies.

The USAF desired a light weight fighter with competitive performance to the MiG, inexpensive when purchased in large numbers, and with reasonable operating costs for prospective customer nations.

[6] Taiwan was already producing the F-5E under license, so the Department of Defense asked Northrop to study adding an AIM-7 capable radar to the Tiger II as an alternative.

[7] In the spring of 1977, Jimmy Carter's administration had announced a new military export policy that limited sales of front line designs to NATO, Australia, and Japan.

"[8] Previously, there was no coherent export policy, fueling concerns that the US's latest technologies might quickly end up in Soviet hands.

GD's F-16/79 was a variant of the F-16A, replacing the Pratt & Whitney F100 turbofan engine with the J79 turbojet and equipping it with downgraded avionics;[10] Northrop responded with the F-5G.

[16] In the summer of 1982, Deputy Secretary of Defense Frank Carlucci sent a memorandum to the Air Force, encouraging it to seek out potential foreign customers to procure FX aircraft.

The General Electric AN/APG-67 multi-mode radar was the heart of the sensor suite, offering a wide range of air-to-air and air-to-ground modes.

This did not present a problem in the fighter role, but did severely reduce its payload and range figures compared to similar aircraft like the F-16.

[28] The F-20 also offered the ability to fire the beyond-visual-range AIM-7 Sparrow missile, a capability that the F-16 lacked at that time, and did not gain until the F-16A/B Block 15 ADF version in February 1989.

[35] The second prototype (serial number 82-0063, registered N3986B, c/n GI1001), featuring the complete avionics suite, made its first flight on 26 August 1983.

[39] According to the Rand Corporation, "Northrop did not take a prototype approach with the F-20… The first F-20 was intended to be a production quality aircraft…"[40] During the test program, the F-20 fired the AIM-9 Sidewinder and, in February 1985 the AIM-7 Sparrow.

Aerospace legend Chuck Yeager, employed as a spokesperson for Northrop, touted the aircraft as "magnificent" and was featured in advertising.

[45] In December 1981, President Reagan, reacting to the Soviet invasion of Afghanistan, signed a major economic and military aid package for Pakistan that included 40 F-16As.

The Soviet invasion of Afghanistan was initially viewed as an attempt to break out of the arranged containment system, thus the U.S. placed a priority on quickly building up a new layer of defense.

[52] Greece, stung by its long-time rival receiving the F-16, purchased 34 F-16C and six F-16Ds in November 1984, giving a firm pledge of secrecy.

The State Department had no interest in selling the FX; from its perspective it was one aircraft among many, leading to a lackadaisical approach,[56] and led to complaints from Northrop that the government was not promoting the F-20 enough.

Thomas V. Jones, Northrop's CEO, argued that there was little point independently developing aircraft if companies were reliant on the government to sell them.

[58] Additionally, Brigadier General Thomas Baker, USAF Director of International Programs, testified that the Air Force was not actively marketing FX.

In November 1984, Congress directed the Air Force and Navy to study the use of a single aircraft type to fill similar aggressor roles for both services.

Northrop claimed that the F-20's fast scramble time made it a natural fit for this role, its lower cost would allow the ANG to operate larger aircraft numbers, and that it supported the AIM-7 while the F-16 did not.

[71] Later on, a bribery scandal would emerge from the attempts to market the F-20 to South Korea, leading to several Northrop managers resigning and the reprimanding of chief executive Thomas V. Jones, who retired in 1989.

[74] Of the components of the F-20, the radar would end up being the most successful; Taiwan selected it for the Ching-kuo, South Korea also adopted it for the KAI T-50 Golden Eagle trainer aircraft.

"[76] While discussing military procurement, Thomas McNaugher stated that competition between the F-20 and the F-16 served to lower prices and generate "massive savings" for the U.S.

[77] Writing prior to cancellation, Ralph Nader and William Taylor noted that the F-20 had been commonly described as "the first privately funded U.S. combat aircraft in recent history.

"[78] Mazher A. Hameed commented in 1986 that the F-20 was a "logical choice" for the Gulf States and Saudi Arabia; however, it had "scant chance of being selected" due to political factors, as well as competition from other candidates such as the Mirage 2000 and Panavia Tornado ADV.