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Does foreign capital inflows really stimulate domestic investment: a case study of Pakistan

Author

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  • Hasanat Shah, Syed
  • Hasnat, Hafsa
  • Li, Junjiang

Abstract

By using system of equations and OLS estimation techniques, this paper examines the impact of foreign capital inflows on domestic investment in Pakistan. The system of equation shows that there is more than one-for-one relation between FDI and domestic investment, while the role of portfolio and loan in stimulating domestic investment is insignificant. The system of equation also shows that the impact of FDI on domestic investment is stronger than the role of domestic investment in attracting FDI. Similarly, OLS techniques confirmed that FDI complements domestic investment, particularly private investment. Contrary to other forms of capital inflows, FDI is positively and significantly correlated with domestic investment in different model specifications.

Suggested Citation

  • Hasanat Shah, Syed & Hasnat, Hafsa & Li, Junjiang, 2010. "Does foreign capital inflows really stimulate domestic investment: a case study of Pakistan," MPRA Paper 35737, University Library of Munich, Germany, revised 2011.
  • Handle: RePEc:pra:mprapa:35737
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    File URL: https://mpra.ub.uni-muenchen.de/35737/1/MPRA_paper_35737.pdf
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    References listed on IDEAS

    as
    1. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    2. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
    3. Adams, Samuel, 2009. "Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 31(6), pages 939-949, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    capital inflows; domestic investment; system of equations; Pakistan;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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