Siddiqui, Danish Ahmed and Ahmad, Mohsin Hasnain (2007): The Causal Relationship between Foreign Direct Investment and Current Account: An Empirical Investigation for Pakistan Economy.
Download (370Kb) | Preview
This paper investigates relationship between FDI and current account (CA) in Pakistan using the Johansen-Juselius cointegration technique and the Granger causality test. The study results indicate that FDI and CA are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between FDI and CA is uni-directional. However, there is no short run causality from FDI to CA and vice versa. Therefore, as a policy implication that FDI inflows may cause to the deterioration of the balance of payments in the long run should be taken into account when policy makers decide to implement policies to attract foreign investors.
|Item Type:||MPRA Paper|
|Original Title:||The Causal Relationship between Foreign Direct Investment and Current Account: An Empirical Investigation for Pakistan Economy|
|Keywords:||Asia; Pakistan; Cointegration; Granger; causality; FDI; Current Assount; error correction|
|Subjects:||F - International Economics > F2 - International Factor Movements and International Business
P - Economic Systems > P4 - Other Economic Systems > P45 - International Trade, Finance, Investment, and Aid
F - International Economics > F3 - International Finance
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
|Depositing User:||Danish siddiqui|
|Date Deposited:||07. Jan 2010 09:07|
|Last Modified:||12. Feb 2013 05:37|
Agosin, M. R. and R. Mayer (2000) “Foreign Investment In Developing Countries: Does It Crowd In Domestic Investment?” UNCTAD Discussion Paper 146, Geneva.
Ahmad Mohsin H et al (2004) “Foreign Direct Investment, Exports and Domestic Output in Pakistan”, Pakistan Development Review.Vol.42.part.II (Winter 2003).
Athukorala, P. and J. Menon (1995) “Developing Countries With Foreign Investment: Malaysia” Australian Economic Review 1, 9-22.
Bosworth, B., Collins, S, (1999). “Capital Flows To Developing Economies: Implication of Saving And Investment” Brooking Papers of Economic Activity.
Calvo, G., Leiderman, L., Reinhart, C.,(1996). “Inflows of Capital to Developing Countries in the 1990s”. Journal of Economic Perspectives, 10,123-139, Spring.
Chuhan, P., Perez-Quiros, G. and Popper, H. (1996) “International Capital Flows: Do Short Term Investment and Direct Investment Differ?” Policy Research Working Paper No. 1507. World Bank.
Feldstein, M. and C. Horioka (1980). “Domestic Saving and International Capital Flows”, Economic Journal: 314-29
Fry, Maxwell J. (1993), Foreign Direct Investment in Southeast Asia: Differential Impacts (Singapore: Institute of Southeast Asian Studies).
Fry, M., Claessens, S., Burridge, P., Blanchet, M., (1995). “Foreign Direct Investment, Other Capital Flows and Current Account Deficits: What Causes What?”. World Bank Policy Research Working Paper no. 1527.
Ghosh, A., Ostry, J. D., (1993). “Do Capital Flows Reflect Economic Fundamentals in Developing countries?”. IMF Working Paper, 93/94.
Ghosh, A., Ostry, J. D.,( 1995). “The Current Account in Developing Countries: a Perspective From Consumption Smoothing Approach.” World Bank Economic Review .No.9.
Engle and Granger C, (1987), “Cointegration and Error correction: Representation, Estimation and Testing”. Econometrica, Vo1.55, pp.251-76.
Jansen, K. (1995) “The Macroeconomic Effects of Direct Foreign Investment: The Case of Thailand” World Development 23, 193-210.
Johansen, S.,(1988). ‘Statistical Analysis of Cointegrating Vectors’, Journal of Economics Dynamics and Control, 12(2): 231-54.
Johansen and Juselius (1990), “Maximum Likelihood Estimation and Inference on Cointegration With Applications the Demand for Money”, Oxford Bulletin of Economics and Statistics, Vo1 52, No.2, pp169-210.
Mackinnon, J.G., (1991). ‘Critical values for Cointegration Tests’ in R.F. Engle and C.W.J.Granger (eds.), Long-Run Economic Relationships: Readings in Cointegration, Oxford University Press, Oxford: chapter 13.
Meyer K. E., (2003). “FDI Spill Over In Emerging Markets: a Literature Review and New Perspectives.” Copenhagen Business School.
Perkins (2001) Dwight. Economics of Development, W.W. Norton & Company, New York.
Seabra, Fernando and Lisandra Flach, (2005) "Foreign Direct Investment And Profit Outflows: A Causality Analysis for the Brazilian economy." Economics Bulletin, Vol. 6, No. 1 pp. 1−15
Sarno, L. and Taylor, M. (1999) “Hot Money Accounting Label And Premature Capital Flows To Developing Countries: An Empirical Investigation”, Journal of Development Economics 59:337-64
Government of Pakistan, Economic Survey ( various issues)
State Bank of Pakistan (SBP), Annual Report (various issues)
Turner, Philip (1991), “Capital Flows in the 1980s: A Survey of Major Trends (Basel: Bank for International Settlements”, Monetary and Economic Department, BIS Economic Papers No. 30, 1991).
UNCTAD (2002) Trade and Development Report 2002, (United Nations Publication, Geneva).
World Bank (1999a) Global Economic Prospects and the Developing Countries.