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Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis

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Author Info

  • Muhammad Arshad Khan

    (Pakistan Institute of Development Economics, Islamabad.)

  • Shujaat Ali Khan

    (Middlebury College, USA.)

Abstract

This paper establishes an empirical relationship between industry -specific foreign direct investment (FDI) and output under the framework of Granger causality and panel cointegration for Pakistan over the period 1981-2008. The result supports th e evidence of panel cointegration between FDI and output. FDI has a positive effect on output in the long run. The result also supports the evidence of long-run causality running from GDP to FDI, while in the short run, the evidence of two-way causality between FDI and GDP is identified. At the sectoral level, the effects of FDI on growth vary significantly across sectors. The most striking result obtained is that FDI causes growth in the primary and services sectors, while growth causes FDI in the manufacturing sector.

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File URL: http://www.pide.org.pk/pdf/Working%20Paper/WorkingPaper-67.pdf
File Function: First Version, 2011
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Bibliographic Info

Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2011:67.

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Length: 22 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:pid:wpaper:2011:67

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Keywords: FDI; Growth; Cointegration; Causality;

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  1. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
  2. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May.
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Cited by:
  1. Raza, Syed Ali & Sabir, Muhammad Sarwar & Mehboob, Farhan, 2011. "Capital inflows and economic growth in Pakistan," MPRA Paper 36790, University Library of Munich, Germany.

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