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The Causality and Economic Impact of FDI inflows from Trade Partners in Pakistan

Author

Listed:
  • Hasanat Shah, Syed
  • He, Bin
  • Li, Junjiang

Abstract

This paper examines causality between FDI, GDP, Exports and Domestic Investment by using Granger and multivariate Granger causality tests. The study also employs gravity based panel model to investigate the impact of FDI inflows from trade partners on GDP, trade and domestic investment in Pakistan. The results show that two-way causality runs between GDP, domestic investment and FDI, while unidirectional causality is detected from exports to FDI. Our panel data estimation confirms the positive role of FDI inflows in GDP and domestic investment while the results shows that the role of FDI is insignificant in case of exports and imports. Similarly, the concentration and sporadic FDI inflows from a few trade partners is adversely affecting GDP and increases imports without affecting domestic investment and exports. On the other hand minor FDI inflows from trade partners significantly contribute to GDP and decreases imports.

Suggested Citation

  • Hasanat Shah, Syed & He, Bin & Li, Junjiang, 2011. "The Causality and Economic Impact of FDI inflows from Trade Partners in Pakistan," MPRA Paper 35645, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35645
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    File URL: https://mpra.ub.uni-muenchen.de/35645/1/MPRA_paper_35645.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    trade partners; causality; gravity model; concentration;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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