The Impact of Productivity on Foreign Direct Investment in Pakistan: A Structural VAR Analysis Abstract (original) (raw)
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IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN PAKISTAN
IAEME PUBLICATION, 2021
The present study was carried out to assess the impact of FDI (foreign direct investment) on economic growth of Pakistan. The basic economic indicators (FDI, GDP, CPI) were used to examine the relative growth using time series technique for 20 years of quarterly data i.e., 1997Q3 to 2017Q4). The ADF test was applied to check the stationarity of time series using its three variants models i.e., model without constant and trend; model with constant and no trend; and model with constant and trend. All the time series were reported to be non-stationary at levels, however, became stationary after taking second difference. The summary statistics revealed that FDI, GDP and CPI during 1997 and 2017 remained in the range of US$ 50.605 and 116.788 billion, 11.767 and 701.300 billion, 37.525 and 154.830; reflecting exceptional variability. The GDP growth was higher in 2005 (8.958%), 2016 (12.44%) and 2017 (17.75%); and least in 2009 (0.361%) and 2015 (0.12 %). The CPI in 1997 (37.29) showed constant increase in the following years and highest (156.9) was in the 2017. The estimated CPI in Pakistan may stand at 250.68 in coming 12 months’ time; while in long term, the projected CPI trend may be around 263.00 points up to 2020.The Granger Causality test was taken to know whether the variables granger cause or vice versa. The results showed that FDI does not granger cause CPI at any leg value (since its effects are not significant) and the effects of CPI on FDI are not significant at first lag, however, these effects become significant of second and third lags respectively. VAR (2) model was selected on the basis of SBIC criterion. The forecast clearly indicates fluctuation in FDI, GDP and CPI and finally after 5-6 quarters, all the forecasts were converged to unconditional mean of the data set.
The Journal of social sciences and humanities, 2019
In the modern world no one can deny the importance of the foreign direct investment (FDI) due to diversity in demand for goods, no country can be self-sufficient in production or technological growth. Pakistan is also one of these countries which need continuous inflow of FDI in order to maintain its economic growth rate. The most significant determinants of foreign direct investment in Pakistan are exchange rate depreciation, inflation rate, unemployment rate, and average taxes imposed on the economy. Time series data from the year 1990 to 2015 was used to analyze the relationship between the FDI and the chosen independent variables. For the purpose multiple regression was used to statistically examine the relationships amongst the variables. The main findings of the study were unemployment has extremely strong relationship with FDI inflows, if unemployment increases by one percent, the FDI will increase by 32 percent. Average tax rate has positive but insignificance relationship. ...
The aim of the study is to analyze and evaluate the impact of core macroeconomic variables -GDP, Inflation and Exchange Rate on Foreign Direct Investment (FDI) inflows in Pakistan. The role and effect of these macroeconomic variables on the growth of FDI inflows has always been the major area of interest for the economics and finance experts and policy makers of the present era. The study therefore attempts to explore how the core macroeconomic indicators affect the FDI inflows in Pakistan. For this purpose time series data covering four decades from year 1971 to year 2009 has been taken for analysis. Ordinary Least Square technique is used to analyze and conclude the results. The results showed that all three macroeconomic variables are positively associated to the dependent variable -FDI. Data stationarity is confirmed through Phillip Peron test at first difference. Data co integration is checked through Log likelihood Ratio that satisfied co integrating equation at 5% significance level. The assumption used in this co integration test is intercept with no trend and vector auto regressive with linear deterministic trend. OLS technique is used to measure the strength and significance of explanatory variables against dependent variable. The results show that GDP, inflation and exchange rate have positive impact on FDI inflows, and the model is found to be significant at 1% level, hence it is concluded that any increase in the three explanatory variables would cause an increase in FDI, therefore government should focus on stabilizing these variables to attract more FDI in to the country to support the economic growth of the country.
AFRICAN JOURNAL OF BUSINESS MANAGEMENT, 2011
This empirical study is an effort to find the impact of exchange rate volatility on foreign direct investment for the Pakistan economy. A secondary time series data set is utilized over the period 1980 to 2010. The most robust and modern technique of auto regressive distributed lag (ARDL) has been applied to find the short run as well as the long run estimates of the study. Furthermore, after establishing the long run relationship multivariate vector error correction method (VECM) causality test has been applied to find the direction of causality between the aforementioned said variables. This analysis included real gross domestic product (GDP), capital account balance, trade openness, real exchange rate and volatility of exchange rate as independent variables along with the introduction of a dummy variable for the structural adjustment programme implemented during the late 1980s as explanatory variable, while foreign direct investment as dependent variable. Major findings of this study included that exchange rate volatility has negative impact on FDI inflow in short run while this impact is positive in the long run. It has found that adjustment and liberalization programme has favourable outcomes in the short run for Pakistan.
The Role of FDI in Economy of Pakistan for the Period of 1971-2018
2019
Foreign direct investment (FDI) affects the economic growth of the host economy through technology transfer, human resource formation, global market integration and enhancement of competition. A variety of previous empirical studies indicate that FDI is an essential source in the host country’s economic growth. Some studies also came up with the ambiguous results, provided that the current study aims to investigate the impact of foreign direct investment on the economic growth of Pakistan. The study utilizes time series data over the period of 1971 to 2018. Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) technique has been applied to investigate the short-run and long-run effects. The results of the study show that FDI has a positive and a significant impact on the economic growth of Pakistan in both short-run and long-run analysis.
This study empirically analyzes the effects of sector-wise FDI inflows on respective sector-wise labor productivity for a panel of seven major sectors of Pakistan's economy covering time period of 1997-2016. For empirical analysis, sector-wise FDI inflows has been used as an independent variable while sector-wise labor productivity is a dependent variable. Initial tests conclude that LSDV fixed effects model is the most appropriate test for the data being used for empirical analysis. Further tests confirm the existence of a long-run Cointegration between these two variables. Wald test shows that a uni-directional short-run causality exists, running from sector-wise labor productivity to sector-wise FDI inflows. Pair-wise Granger-Causality test further shows that the effects of FDI inflows are not limited to one sector, rather there is an evidence of spillover effect from one sector to another. All empirical tests conclude that sector-wise FDI inflows positively affect sector-wise labor productivity in case of Pakistan.
Journal of Accounting and Finance in Emerging Economies, 2020
This study investigates the factors that lead to affect foreign direct investment (FDI), using Pooled data for five sectors namely, mining and quarrying, manufacturing, transport, storage and communication, construction and trade and commerce for 1972 to 2018 in Pakistan. This study also investigates that whether the determinants of FDI are same or different across sectors? To further analyze the role of policy variables, dummy for privatization and liberalization have been introduced. Using Autoregressive distributed lag model (ARDL), this study found the presence of long run relationship among variables. Further, the results of panel as well as individual time series regression suggest that in the long run, variables such as agglomeration, market size, market growth, domestic investment, labor productivity, financial performance, political instability, privatization and liberalization are deep determinants of FDI across sectors. Results also show that in the short run, only agglom...
The Impact of Foreign Direct investment on Pakistan Economic Growth
2013
Foreign direct investment (FDI) is often seen as an important catalyst for economic growth in the developing countries. It affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries. The core object behind this study is to explore the exports as well as compare to imports, for the development of Pakistan by Foreign Direct investment (FDI) & find out the impact of GDP growth. Particularly the main objective is the exports increases against imports & to control the deficit problem of the country. This paper focuses on the FDI-led growth hypothesis in the case of Pakistan economy. This study comprises of annual observations and its data cover period from 1976 to 2010 and evaluate a series of observations. I describe this study with three variables, depended & independed variables & to use the secondary data & put into ARDL (Auto Regressive Distributed Lag) Model are applied to exam...
How Does Foreign Direct Investment Affect Economic Growth in Pakistan: A Time Series Data Analysis
Review of economics and development studies, 2019
In developing countries, the foreign sector plays an important role and a critically important one for economic stabilization. The yearly data was employed for the period 1975-2017 for the analysis. The variables of the study include the gross domestic product, foreign direct investment, inflation rate, industry sector growth, broad money, gross fixed capital formation, trade openness, and gross savings. An empirical analysis is done by using Auto-Regressive Distributed Lag Model (ARDL), and the Augmented Dickey Fuller (ADF) test is applied to analyze the unit root. In the present study, empirical findings demonstrated the negative association between economic growth and foreign direct investment in Pakistan. This argument also supports the idea, where foreign direct investment will not be in favor of the growth of developing countries as the domestic industry would not compete to the foreign industry which provides the products at a low rate. Secondly, foreign direct investment in Pakistan is not that level which can affect the GDP of Pakistan.
South Asian Journal of Business Studies, 2020
PurposeThis empirical analysis tries to examine determinants of private foreign direct investment (FDI) in Pakistan using the bounds test approach. Main determinants of FDI among them are the size of the market (Q) macroeconomic stability (r), political stability (PRS), real exchange rate (REX) and institutional quality (INQ).Design/methodology/approachThis study used annual time-series data set starting from 1980 to 2016. This study has used time-series data with ARDL and error-correction model (ECM) and examined main determinants of FDI for Pakistan. The study used the Granger causality test (modified WALD test) to identify the causality among the variables.FindingsMoreover, empirical findings indicate the long-run relationship between GDP, trade openness and institutional quality toward FDI. However, political instability, inflation and real exchange rate harm FDI in Pakistan. Furthermore, results of Granger causality indicate that the bidirectional causality running from FDI and...