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Does foreign capital inflows really stimulate domestic investment: a case study of Pakistan

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  • Hasanat Shah, Syed
  • Hasnat, Hafsa
  • Li, Junjiang
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    Abstract

    By using system of equations and OLS estimation techniques, this paper examines the impact of foreign capital inflows on domestic investment in Pakistan. The system of equation shows that there is more than one-for-one relation between FDI and domestic investment, while the role of portfolio and loan in stimulating domestic investment is insignificant. The system of equation also shows that the impact of FDI on domestic investment is stronger than the role of domestic investment in attracting FDI. Similarly, OLS techniques confirmed that FDI complements domestic investment, particularly private investment. Contrary to other forms of capital inflows, FDI is positively and significantly correlated with domestic investment in different model specifications.

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    File URL: http://mpra.ub.uni-muenchen.de/35737/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35737.

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    Date of creation: 2010
    Date of revision: 2011
    Handle: RePEc:pra:mprapa:35737

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    Keywords: capital inflows; domestic investment; system of equations; Pakistan;

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    1. Adams, Samuel, 2009. "Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 31(6), pages 939-949, November.
    2. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-51, January.
    3. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
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