Rahman, Mohammad Mafizur and Shahbaz, Muhammad (2011): Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan.
Download (143kB) | Preview
The paper investigates the effects of imports and foreign capital inflows on economic growth in case of Pakistan over the period of 1990Q1-2008Q4. We have applied ARDL bounds testing approach to examine the long run relationship and investigated the direction of causality by using VECM multivariate framework.
Our analysis confirms the long run relationship between imports, foreign capital inflows and economic growth. The results show that imports and foreign capital inflows have positive and significant effect on the economic growth of Pakistan. Causality analysis reveals bidirectional causal association among the variables, but strong causality is found from imports and foreign capital inflows to real GDP.
|Item Type:||MPRA Paper|
|Original Title:||Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan|
|English Title:||Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan|
|Keywords:||Imports, FDI, Growth, Pakistan|
|Subjects:||A - General Economics and Teaching > A1 - General Economics|
|Depositing User:||Muhammad Shahbaz|
|Date Deposited:||28. Mar 2011 23:44|
|Last Modified:||30. Dec 2015 13:05|
Ahmad. H., Alam, S and Butt. M. S., (2004). Foreign Direct Investment, Exports and Domestic Output in Pakistan, The Pakistan Development Review, 42(4), pp: 715-723.
Aitken, B and Harrison, A., (1999). Do Domestic Firms Benefit from Foreign Investment? Evidence from Venezuela, American Economic Review, 89(3), pp: 605-618.
Alfaro, L., Chanda, A., Kalemli-Ozcan, K and Sayek, S., (2004). FDI and Economic Growth: The Role of Local Financial Markets, Journal of International Economics, 64 (1), pp: 113-134.
Aqeel, A and Nishat, M., (2004). The Determinants of Foreign Direct Investment in Pakistan, The Pakistan Development Review, 43(4), pp: 651-664.
Asafu-Adjaya, J., and D. Chakraborty. (1999). Exports-Led Growth and Imports Comparisons: Further Time Series Evidence from LDCs, Australian Economic Papers, 38 (2), pp: 164-175.
Awokuse, T. O., (2007). Causality between Exports, Imports and Economic Growth: Evidence from Transition Economies, Economics Letters, 94(3), pp: 389-395.
Awokuse, T. O., (2008). Trade Openness and Economic Growth: Is Growth Export-led or Import-led?, Applied Economics, 40(2), pp: 161-173.
Blomstrom, M., Lipsey, R. E and Zegan, M., (1994). What Explains the Growth of Developing Countries in W.E. Baumal, R.R. Nelson and E.N. Wolff (Eds.) Convergence of Productivity: Cross-National Studies and Historical Evidence, Oxford University Press.
Blomstrom,M and Wolf, E., (1994). Multinational Corporations and Productivity Convergence in Mexico, in: W. Bahmol, R. Nelson,and E. Wolff (Eds.), Convergence of Productivity: CrossNational Studies and Historical Evidence, New York, Oxford University Press, pp: 243-259.
Borensztein E., de Gregorio, J and Lee, J. W., (1998). How Does Foreign Direct Investment Affect Growth, Journal of International Economics, 45(1), pp: 115-135.
Carkovic, M and Levine, R., (2002). Does FDI Accelerate Economic Growth? Unpublished manuscript, University of Minnesota.
Carkovic, M and Levine, R., (2005). Does Foreign Direct Investment Accelerate Economic Growth? in Graham E M. Moran, T.H. and Blomström, M. (eds.) Does Foreign Direct Investment promote Development: New Methods, Outcomes and Policy Approaches, 195-220, Washington D.C.: Institute of International Economics.
Cave, R. E., (1974). Multinational Firms, Competition, and Productivity in Host Country Markets, Economica, 41(162), pp: 176-193.
Cotton, L and Ramachandran, V., (2001). Foreign Direct Investment in Emerging Economies, WIDER Discussion Paper No. 2001/82.
Damooei, J and Tavakoli, A., (2006). The Effects of Foreign Direct Investment and Imports on Economic Growth: A Comparative Analysis of Thailand and the Philippines (1970-1998), The Journal of Developing Areas, 39(2), pp: 79-100.
De Gregorio, J., (1992). Economic Growth in Latin America, Journal of Development Economics, 39(1), pp: 59-84.
De Mello, L. R. Jr., (1999). Foreign Direct Investment-Ld Growth: Evidence from Time Series and Panel Data, Oxford Economic Papers, 51(1), pp: 133-151.
Engle, RF and Granger CWJ., (1987). Cointegration and Error Correction Representation: Estimation and Testing, Econometrica, 55, pp: 251-276.
Falki, N., (2009). Impact of Foreign Direct Investment on Economic Growth in Pakistan, International Review of Business Research Papers, 5(5), pp. 110-120.
Findlay, R., (1978). Relative Backwardness, Direct Foreign Investment and the Transfer of Technology: A Simple Dynamic Model, Quarterly Journal of Economics, 92(1), pp: 1-16.
Globerman, S., (1979). Foreign Direct Investment and Spillover Efficiency Benefits in Canadian Manufacturing Industries, Canadian Journal of Economics, 12(1), pp: 42-56.
Haddad, M and Harrison, A., (1993). Are There Positive Spillovers from Direct Foreign Investment? Evidence from Panel Data for Morocco, Journal of Development Economics, 42(1), pp: 51-74.
Hentschel, J. (1992). A Note on the Relationship between Imports and Growth, Review of World Economics, 128(2), pp: 339-345.
Hermes, N and Lensink, R., (2003). Foreign Direct Investment, Financial Development and Economic Growth, Journal of Development Studies, 40(1), pp: 142-163.
Hsu, C-C and Wu, J-Y., (2009). FDI and Economic Growth: Revisiting the Role of Financial Market Development, Working Paper, Department of Economics, National Central University, Taiwan.
Iscan, T., (1998). Trade Liberalization and Productivity: A Panel Study of the Mexican Manufacturing Industry, The Journal of Development Studies, 34(5), pp: 123-148.
Johansen, S and Juselius, K., (1990). Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money, Oxford Bulletin of Economics and Statistics, 52 (2), pp: 169-210.
Khor, M., (2000). Globalization and the South. Some critical issues, Third World Network, Penang.
Kim, et al. (2007). Could Imports be Beneficial for Economic Growth: Some Evidence from Republic of Korea, ERD Working paper series No. 103, Asian Development Bank, Philippines.
Kokko, A., Tansini, R and Zejan, M. C., (1996). Local Technological Capability and Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector, The Journal of Development Studies, 32(4), pp: 602-11.
Lawrence, R and Weinstein. D., (1999). Trade and Growth: Import-led or Export-led? Evidence from Japan and Korea, NBER Working Paper No. 7264, National Bureau of Economic Research, Cambridge.
Lawrence, R., (1999). Does a Kick in the Pants Get You Going or Does It just Hurt? The Impact of International Competition on Technological Change in US Manufacturing, In R. Feenstra, ed., Globalization and Wages. Chicago: University of Chicago Press.
Lee, C. G., (2010). Exports, Imports and Economic Growth: Evidence from Pakistan, European Journal of Scientific Research, 45(3), pp: 422-29.
Lim, L. Y. C and Sidall, N., (1997). Investment Dynamism in Asian Developing Countries, in Dunning J.H. and K.A. Hamdani (eds), The New Globalism and Developing Countries, Tokyo, United Nations University Press.
Love, J and Chandra, R., (2005). Testing Export- led Growth in South Asia, Journal of Economic Studies, 32(2), pp: 132-45.
Narayan, P.K., 2005. The Savings and Investment nexus for China: Evidence from Cointegration Tests. Applied Economics, 37(17), 1979-1990.
Naveed, A and Shabeer, G., (2006). Trade Openness, FDI and Economic Growth: Panel Study, Pakistan Economic and Social Review, 44(1), pp: 137-154.
Pesaran, M.H., Shin, Y., Smith, R.J., (2001). Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16 (3), pp: 289-326.
Phillips, P. C. B. and B. E. Hansen., (1990). Statistical Inference in Instrumental Variables Regression with I(1) Processes, Reviews of Economic Studies, 57(1), pp. 99-125.
Rahman, M. M, and Shahbaz, M., (2010). Foreign Direct Investment-Economic Growth Link: The Role of Domestic Financial Sector Development in Bangladesh, Unpublished manuscript.
Ramachandran, V and Shah. M. K., (1999). Minority Entrepreneurship and Firm Performance in Sub-Saharan Africa, The Journal of Development Studies, 36(2), pp: 71-87.
SBP. (2010). Statistical Economic Bulletins published by State Bank of Pakistan.
Shahbaz, M and Rahman, M. M., (2010). Foreign Capital Inflows-Growth Nexus and Role of Domestic Financial Sector: An ARDL Co-integration Approach for Pakistan, Journal of Economic Research, 15(3), pp: 207-31.
Shahbaz, M., Ahmad, K and AR, Chaudhary., (2008), “Economic Growth and Its Determinants in Pakistan”, The Pakistan Development Review, 47, 471-486.
Shahbaz, M., SMA, Shamim and N, Aamir (2010). Macroeconomic Environment and Financial Sector’s Performance: Econometric Evidence from Three Traditional Approaches, The IUP Journal of Financial Economics, 1&2: 103-123.
Shahbaz. M and Khan, R, I., 2010. Old wine in new bottles: saving-growth nexus: innovative accounting technique in Pakistan. Theoretical and Applied Economics, 7, 49-60.
Shahbaz. M, (2010), “Income Inequality-Economic growth and Non-Linearity: A Case of Pakistan”, International Journal of Social Economics, 37, 613-736.
Shan, J., (2005). Does Financial Development 'lead' Economic Growth? A Vector Auto- Regression Appraisal, Applied Economics, 37(12), pp: 1353-1367.
Sun, H., (1998). Macroeconomic Impact of Direct Foreign Investment in China: 1979-1996, The World Economy, 21(5), pp: 675-94.
Teboul, R and Mouslier, E., (2001). Foreign Aid and Economic Growth: The Case of the Countries South of the Mediterranean, Applied Economics Letters, 8(3), pp: 187-190.
Thangavelu, S and Rajaguru. G., (2004). Is There an Export or Import-Led Productivity Growth in Rapidly Developing Asian Countries? A Multivariate VAR Analysis, Applied Economics, 36(10), pp: 1083-1093.
Turner, P., (2006). Response Surfaces for an F-test for Cointegration, Applied Economics Letters, 13(8), pp: 479-482.
Uddin, M., (2004). Exports, Imports, and Economic Growth in South Asia: Evidence using a Multivariate Time- series Frame work, The Pakistan Development Review, 43(2), pp: 105-24.
Wang, J. Y., (1990). Growth, Technology Transfer and the Long-run Theory of International Capital Movements, Journal of International Economics, 29(3-4), pp: 255-271.
World Economics, Vol. 128, Issue No. 2.
Zhang. H, (2001). How Does Foreign Direct Investment Affect Economic Growth in China? Economics of Transition, 9(3), pp: 679-693.