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Effect of Openness to Trade and FDI on Industrial Sector Growth: A Case Study for Pakistan

  • Faiza Umer

    ()

    (Applied Economics Research Centre (AERC) University of Karachi)

  • Shaista Alam

    ()

    (Applied Economics Research Centre (AERC) University of Karachi)

Registered author(s):

    This present paper is analyzing the effect of trade openness and foreign direct investment (FDI) on industrial sector growth in Pakistan. This paper is examined that Pakistan’s industrial growth is affected by trade openness through a number of channels including monetary policy, fiscal policy, and Fdi. This study is employs Johansen and Juselius co-integration technique and Vector Error Correction Mechanism approach to estimate short run as well as long run relationship using annual time series data for the period 1960-2011. The study found that the relevant macro economic indicators Fdi and Real Gdp have positive and significant long run relationship with industrial sector growth while Trade openness and Inflation have negative long-run relationship with industrial sector growth also Real effective exchange rate have statistically insignificant results in long-run, on the other hand in short run lagged value of own industrial sector, Fdi, Reer, Real GDP have positive and significant impact on industrial sector growth. While inflation and trade openness shows insignificant relationship and Ec (-1) confirms long-run relationship among all independent variables.

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    Article provided by Department of International Business and Economics from the Academy of Economic Studies Bucharest in its journal Romanian Economic Journal.

    Volume (Year): 16 (2013)
    Issue (Month): 48 (June)
    Pages: 179-198

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    Handle: RePEc:rej:journl:v:16:y:2013:i:47:p:179-198
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    1. Dilip Dutta & Nasiruddin Ahmed, 2004. "Trade liberalization and industrial growth in Pakistan: a cointegration analysis," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1421-1429.
    2. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    3. Gene M. Grossman & Elhanan Helpman, 1989. "Growth and Welfare in A Small Open Economy," NBER Working Papers 2970, National Bureau of Economic Research, Inc.
    4. Sindzingre, Alice, 2005. "Explaining Threshold Effects of Globalization on Poverty: An Institutional Perspective," Working Paper Series RP2005/53, World Institute for Development Economic Research (UNU-WIDER).
    5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    6. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
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