Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis

Journal of Basic and Applied Scientific Research, 4(4): 217-226, 2014

10 Pages Posted: 3 May 2014

See all articles by Sharafat Ali

Sharafat Ali

Government Graduate College Kot Sultan - Department of Economics

Hamid Waqas

Mohammad Ali Jinnah University (MAJU)

Muhammad Asghar

Bahauddin Zakariya University

Raheel Kalroo

Bahauddin Zakariya University Multan - Layyah Campus

Muhammad Ayaz

University of Balochistan - Department of Economics

Mukhtyar Khan

Government Degree College

Date Written: April 29, 2014

Abstract

Present study is focused to examine the effects of foreign capital flows on domestic investment in Pakistan economy for the period of 1972-2013. Time series econometric techniques like unit root test, Johansen cointegration and Granger causality methods have been used for the data analysis. Long run cointegration relationship has been found between domestic investment and foreign capital flow variables. Unidirectional causality running from external debt stock, remittances and domestic saving to domestic investment has been found. The causality between external debt servicing and investment is bidirectional. Bidirectional causality is also observed between foreign direct investment and domestic investment but causality between investment and inflation is confirmed in neither direction. The results are statistically robust and the estimated model is stable. The study suggests some policy recommendations.

Keywords: External Debt, Debt Servicing, Investment, Remittances, Domestic Saving, Cointegration, Granger Causality, Pakistan

JEL Classification: C32, E31, F21, R53

Suggested Citation

Ali, Sharafat and Waqas, Hamid and Asghar, Muhammad and Kalroo, Raheel and Ayaz, Muhammad and Khan, Mukhtyar, Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis (April 29, 2014). Journal of Basic and Applied Scientific Research, 4(4): 217-226, 2014, Available at SSRN: https://ssrn.com/abstract=2431076

Sharafat Ali (Contact Author)

Government Graduate College Kot Sultan - Department of Economics ( email )

Kot Sultan
Layyah, Punjab 31650
Pakistan

Hamid Waqas

Mohammad Ali Jinnah University (MAJU) ( email )

Islamabad Expressway
Kahuta Road, Zone-V
Islamabad, 44000
Pakistan

Muhammad Asghar

Bahauddin Zakariya University ( email )

Bosan Road
Multan, PA Punjab 60800
Pakistan

Raheel Kalroo

Bahauddin Zakariya University Multan - Layyah Campus ( email )

Layyah Campus, Bahauddin Zakariya University Mult
Layyah, Punjab 31200
Pakistan

Muhammad Ayaz

University of Balochistan - Department of Economics ( email )

Department of Economics
Quetta, Balochistan
Pakistan

Mukhtyar Khan

Government Degree College ( email )

Rajahmundry
India

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