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Boon or bane- role of FDI in the economic growth of Pakistan

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  • Mughal, Mazhar
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    Abstract

    We study the effects of FDI inflows on the Pakistani economy over the period 1961-2005 using the Johansen co-integration technique and the Vector Error Correction Model. We determine that FDI does have a positive effect on the economy, particularly in the short term. Foreign investment is found to have a less important role than domestic investment. However, FDI impacts negatively on human capital. We can thus say that FDI has neither been an absolute boon nor a downright bane for Pakistan. On étudie l'impacte des IDE sur l'économie Pakistanaise pendant la période 1961-2005 en utilisant la technique de cointégration de Johansen et le VECM. On trouve que les IDE ont un effet positif sur l'économie particulièrement à court terme. Les investissements étrangers ont un rôle moins important que celui des investissements domestiques. En revanche, l'impacte sur le capital humain est négatif. Par conséquent, on peut conclure que les IDE ont été ni bénéfiques, ni néfastes.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16468.

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    Date of creation: 2008
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    Handle: RePEc:pra:mprapa:16468

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    Keywords: Foreign direct investment; Economic growth; Pakistan; Human capital; Domestic investment.;

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    1. Mohsin Hasnain Ahmad & Shaista Alam & Mohammad Sabihuddin Butt, 2003. "Foreign Direct Investment, Exports, and Domestic Output in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 715-723.
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    7. 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.
    8. Ashfaque H. Khan, 1997. "Foreign Direct Investment in Pakistan: Policies and Trends," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(4), pages 959-985.
    9. Gruben, William C. & McLeod, Darryl, 1998. "Capital Flows, Savings, and Growth in the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 1), pages 287-301.
    10. Li, Xiaoying & Liu, Xiaming, 2005. "Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship," World Development, Elsevier, vol. 33(3), pages 393-407, March.
    11. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1.
    12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    13. Zahir Shah & Qazi Masood Ahmed, 2003. "The Determinants of Foreign Direct Investment in Pakistan: an Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 697-714.
    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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