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Foreign Capital Inflows and Domestic Savings in Pakistan: Cointegration Techniques and Error Correction Modelling


  • Mohsin Hasnain Ahmad

    (Applied Economics Research Centre, University of Karachi.)

  • Qazi Masood Ahmed

    (Institute of Business Administration, Karachi and Social Policy and Development Centre, Karachi.)


The various form of inflow of foreign capital (loans, FDI, grant and portfolio) was welcome in developing countries to bridge the gap between domestic saving and domestic investment and therefore, to accelerate growth [Chenery and Strout (1966)]. Some other have been challenged the traditional view that foreign aid impedes domestic savings growth and mobilisation and have economic growth.1 Much attention have been paid in past 30 years, relationship between foreign capital flows and domestic saving, the main purpose of these studies have been determined whether in less developed countries foreign capital inflow and domestic saving are complementary or substitute. However, there is a controversy at theoretical and empirical levels, over the effects of foreign capital on both economic growth and national saving. A number of studies in Pakistan have been conducted during the early 1990s to examine the relationship between saving and foreign capital inflow.2 All studies shows the inverse relationship between foreign capital inflows3 (aggregate level) and saving rate, but the impact of FCI at disaggregate levels (loans, grants, FDI) on saving rate show different magnitude and signs, similarly impact of FCI on decomposition of saving rate (Public, private, household, corporate) also have different magnitude and sign. However, the most important problem associated with previous studies is that these are based on the assumption that the time series data that are being used are stationary.

Suggested Citation

  • Mohsin Hasnain Ahmad & Qazi Masood Ahmed, 2002. "Foreign Capital Inflows and Domestic Savings in Pakistan: Cointegration Techniques and Error Correction Modelling," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 825-836.
  • Handle: RePEc:pid:journl:v:41:y:2002:i:4:p:825-836

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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.
    2. Muhammad Shabbir & Imrab Shaheen & Fahrat Qayyum, 2020. "Domestic Investment in Pakistan: An Analysis Across Different Political Regimes," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 344-351.
    3. Luqman, Muhammad & Haq, Mairajul & Lal, Irfan, 2013. "Foreign Aid and Macroeconomic Performance in Pakistan: Exploring the Role of Local Financial Sector Development," MPRA Paper 106866, University Library of Munich, Germany.
    4. Rahila Munir & Maqbool H. Sial & Ghulam Sarwar & Samina Shaheen, 2011. "Effect of Workers Remittances on Private Savings Behavior in Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 95-103, September.

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