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Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis

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  • Muhammad Arshad Khan
  • Shujaat Ali Khan

Abstract

This paper establishes an empirical relationship between industry -specific foreign direct investment (FDI) and output under the framework of Granger causality and panel cointegration for Pakistan over the period 1981-2008. The result supports th e evidence of panel cointegration between FDI and output. FDI has a positive effect on output in the long run. The result also supports the evidence of long-run causality running from GDP to FDI, while in the short run, the evidence of two-way causality between FDI and GDP is identified. At the sectoral level, the effects of FDI on growth vary significantly across sectors. The most striking result obtained is that FDI causes growth in the primary and services sectors, while growth causes FDI in the manufacturing sector. [PIDE Working Paper No. 2011:67]. URL:[http://pide.org.pk/pdf/Working%20Paper/WorkingPaper-67.pdf].

Suggested Citation

  • Muhammad Arshad Khan & Shujaat Ali Khan, 2012. "Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis," Working Papers id:4683, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:4683
    Note: Institutional Papers
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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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