The Causal Relationship between Foreign Direct Investment and Current Account: An Empirical Investigation for Pakistan Economy
AbstractThis paper investigates relationship between FDI and current account (CA) in Pakistan using the Johansen-Juselius cointegration technique and the Granger causality test. The study results indicate that FDI and CA are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between FDI and CA is uni-directional. However, there is no short run causality from FDI to CA and vice versa. Therefore, as a policy implication that FDI inflows may cause to the deterioration of the balance of payments in the long run should be taken into account when policy makers decide to implement policies to attract foreign investors.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19743.
Date of creation: Mar 2007
Date of revision:
Asia; Pakistan; Cointegration; Granger; causality; FDI; Current Assount; error correction;
Other versions of this item:
- Danish Ahmed SIDDIQUI & Mohsin Hasnain AHMAD & Muhammad ASIM, 2013. "The causal relationship between Foreign Direct Investment and Current Account: an empirical investigation for Pakistan economy," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(8(585)), pages 91-106, August.
- F2 - International Economics - - International Factor Movements and International Business
- P45 - Economic Systems - - Other Economic Systems - - - International Linkages
- F3 - International Economics - - International Finance
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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