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Foreign Direct Investment (FDI) and Exports: A Growth Nexus Revisited

  • Samina Khalil

    (Senior Research Economist Applied Economics Research Centre University of Karachi. Karachi, Pakistan)

  • Iftikhar Hussain

    (MPhil student Applied Economics Research Centre, University of Karachi. Karachi, Pakistan)

Registered author(s):

    Developing countries in Asia mostly rely on FDI to acquire capital funds and advance techniques of production and business management. After adopting the liberalization policies in 1990?s, the inflow of FDI in Pakistan has increased many folds and likewise the export is also growing continuously. This paper explores the impact of foreign direct investment on Pakistan?s overall exports relation with FDI for the period 1971-2009. The Augmented Dickey Fuller Test (ADF), Dickey Fuller-GLS and Philip Perron tests are being applied to check the stationarity of the variables. The results depict significant association of foreign direct investment with over all exports in the long run. However world? income is insignificantly linked with exports in the short run. The long run results are opposite to that of earlier work (Anwar, 1985). The possible justifications for difference in results are different methodologies used and the difference in time period. Real effective exchange rate, economic growth and relative prices show considerable association with export performance in the long run. The short run behavior show different results. Policy makers of Pakistan may focus on raising exports and apply policy tools through using channel of FDI by raising FDI in the long run. However, in the short run FDI may not be an effective tool.

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    Article provided by Asian Economic and Social Society in its journal International Journal of Asian Social Science.

    Volume (Year): 3 (2013)
    Issue (Month): 10 (October)
    Pages: 2170-2182

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    Handle: RePEc:asi:ijoass:2013:p:2170-2182
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    1. Grigoris Zarotiadis, 2008. "FDI and International Trade Relations: A Theoretical Approach," International Trade and Finance Association Conference Papers 1136, International Trade and Finance Association.
    2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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    4. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
    5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    6. Linda S. Goldberg & Michael W. Klein, 1999. "International trade and factor mobility: an empirical investigation," Staff Reports 81, Federal Reserve Bank of New York.
    7. Zeshan Atique & Mohsin Hasnain Ahmad & Usman Azhar, 2004. "The Impact of FDI on Economic Growth under Foreign Trade Regimes: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 707-718.
    8. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
    9. Muhammad Tariq Majeed & Eatzaz Ahmad, 2006. "Determinants of Exports in Developing Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1265-1276.
    10. Nguyen Thanh Xuan & Yuqing Xing, 2008. "Foreign direct investment and exports," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(2), pages 183-197, 04.
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