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Effects Of Capital Inflows On Fiscal Balance In An Emerging Economy: Evidence From Pakistan

Author

Listed:
  • MUHAMMAD ZAKARIA

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

  • WEN JUN

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China)

  • AROOJ KHAN

    (Department of Management Sciences, COMSATS University Islamabad, Islamabad, Pakistan)

Abstract

This paper examines the effect of capital inflows on fiscal deficit in an emerging economy of Pakistan. To obtain this objective, a fiscal deficit model is estimated using annual data for the period 1984–2017. The model is estimated using Generalized Method of Moments (GMM) technique. Three measures of capital inflow variables are taken, i.e., remittances, foreign direct investment (FDI) and foreign debt. The findings reveal that capital inflows increase fiscal deficit in the country. The findings show that 1% increase in remittances will increase fiscal deficit by 0.312%, while 1% increase in FDI will deteriorate budget deficit by 0.250%. Similarly, 1% increase in foreign debt will worsen fiscal balance by 0.073%. Remittances and FDI have more effect on fiscal deficit compared to foreign debt. It implies that both remittances and foreign debt deteriorate fiscal balance in the country more than foreign debt. The study suggests that remittances, FDI and foreign debt should be used for productive purposes as they will help in improving fiscal balance in the country.

Suggested Citation

  • Muhammad Zakaria & Wen Jun & Arooj Khan, 2023. "Effects Of Capital Inflows On Fiscal Balance In An Emerging Economy: Evidence From Pakistan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(05), pages 1585-1598, September.
    • Handle: RePEc:wsi:serxxx:v:68:y:2023:i:05:n:s0217590819500474
    DOI: 10.1142/S0217590819500474
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    More about this item

    Keywords

    Fiscal balance; capital inflows; Pakistan;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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