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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
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    References listed on IDEAS

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    1. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    2. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
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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. Khatun, Fahmida & Ahamad, Mazbahul, 2015. "Foreign direct investment in the energy and power sector in Bangladesh: Implications for economic growth," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1369-1377.
    3. Habib Nawaz Khan & Muhammad Arshad Khan & Radzuan B. Razli & Afz’a Binti Sahfie & Gulap Shehzada & Katrina Lane Krebs & Nasrin Sarvghad, 2016. "Health Care Expenditure and Economic Growth in SAARC Countries (1995–2012): A Panel Causality Analysis," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 11(3), pages 639-661, September.

    More about this item

    Keywords

    FDI; Growth; Cointegration; Causality; manufacturing sector; output; GDP; Granger causality; panel cointegration; Pakistan; primary; services sector; total factor productivity; technology transfer;

    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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