Is Stock Market Sensitive to Foreign Capital Inflows and Economic Growth? Evidence from Pakistan
This study investigates the impact of foreign capital inflows and economic growth on stock market capitalization in Pakistan by using the annual time series data from the period of 1976 to 2011. The ARDL bound testing cointegration approach confirms the valid long run relationship between considered variables. Results indicate that foreign direct investment, workers’ remittances and economic growth have significant positive relationship with the stock market capitalization in long run as well as in short run. Results of dynamic ordinary least square (DOLS) and fully modified ordinary least square (FMOLS) suggest that the initial results of long run coefficients are robust. Results of variance decomposition test show the bidirectional causal relationship of foreign direct investment and economic growth with stock market capitalization. However, unidirectional causal relationship is found in between workers’ remittances and stock market capitalization. It is suggested that in Pakistan, investor can make their investment decisions through keep an eye on the direction of the considered foreign capital inflows and economic growth.
|Date of creation:||05 Apr 2013|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Haug, Alfred A, 2002. " Temporal Aggregation and the Power of Cointegration Tests: A Monte Carlo Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(4), pages 399-412, September.
- Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003.
"Law and finance: why does legal origin matter?,"
Journal of Comparative Economics,
Elsevier, vol. 31(4), pages 653-675, December.
- Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2002. "Law and Finance: why Does Legal Origin Matter?," NBER Working Papers 9379, National Bureau of Economic Research, Inc.
- Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2002. "Law and finance : why does legal origin matter?," Policy Research Working Paper Series 2904, The World Bank.
- Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, December.
- Oke, Micheal Ojo, 2012. "Foreign Direct Investment and the Nigerian Financial Sector Growth," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(2), pages 262-275, June.
- Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
- Valeriano F. García & Lin Liu, 1999. "Macroeconomic Determinants of Stock Market Development," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 29-59, May.
- Edwards, Sebastian, 1992.
"Trade orientation, distortions and growth in developing countries,"
Journal of Development Economics,
Elsevier, vol. 39(1), pages 31-57, July.
- Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
- Chor Foon Tang, 2009. "Electricity consumption, income, foreign direct investment, and population in Malaysia," Journal of Economic Studies, Emerald Group Publishing, vol. 36(4), pages 371-382, November.
- Thorsten Beck & Ross Levine, 2002.
"Stock Markets, Banks, and Growth: Panel Evidence,"
NBER Working Papers
9082, National Bureau of Economic Research, Inc.
- Syed ali, Raza & Syed tehseen, jawaid & Imtiaz, arif & Fahim, qazi, 2011. "Validity of capital asset pricing model: evidence from Karachi stock exchange," MPRA Paper 32737, University Library of Munich, Germany.
- Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997.
"Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables,"
Cambridge Working Papers in Economics
9706, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
- Mohammad Hashem Pesaran & Richard J Smith & Yongcheol Shin, 1999. "Structural analysis of vector error correction models with exogenous I(1) variables," ESE Discussion Papers 38, Edinburgh School of Economics, University of Edinburgh.
- Stern, David I., 1993. "Energy and economic growth in the USA : A multivariate approach," Energy Economics, Elsevier, vol. 15(2), pages 137-150, April.
- Adam, Anokye M. & Tweneboah, George, 2008. "Foreign Direct Investment and Stock market Development: Ghana’s Evidence," MPRA Paper 11985, University Library of Munich, Germany, revised 2008.
- Chunlai Chen, 2011. "Foreign Direct Investment in China," Books, Edward Elgar Publishing, number 14100, June.
- Chatrath, Arjun & Ramchander, Sanjay & Song, Frank, 1996.
"Stock prices, inflation and output: Evidence from India,"
Journal of Asian Economics,
Elsevier, vol. 7(2), pages 237-245.
- Arjun Chatrath & Sanjay Ramchander & Frank Song, 1997. "Stock prices, inflation and output: evidence from India," Applied Financial Economics, Taylor & Francis Journals, vol. 7(4), pages 439-445.
- Sourafel Girma & Anja Shortland, 2008.
"The political economy of financial development,"
Oxford Economic Papers,
Oxford University Press, vol. 60(4), pages 567-596, October.
- Sourafel Girma & Anja Shortland, 2004. "The Political Economy of Financial Development," Money Macro and Finance (MMF) Research Group Conference 2004 39, Money Macro and Finance Research Group.
- Sourafel Girma & Anja Shortland, 2004. "The Political Economy of Financial Development," Discussion Papers in Economics 04/21, Department of Economics, University of Leicester, revised Oct 2004.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Demirguc-Kunt, Ash & Levine, Ross, 1996.
"Stock Market Development and Financial Intermediaries: Stylized Facts,"
World Bank Economic Review,
World Bank Group, vol. 10(2), pages 291-321, May.
- Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
- Orawan Ratanapakorn & Subhash Sharma, 2007. "Dynamic analysis between the US stock returns and the macroeconomic variables," Applied Financial Economics, Taylor & Francis Journals, vol. 17(5), pages 369-377.
- Muhammad, Shahbaz & Faridul, Islam & Naveed, Aamir, 2011.
"Is devaluation contractionary? empirical evidence for Pakistan,"
32520, University Library of Munich, Germany, revised 01 Aug 2011.
- Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, vol. 45(4), pages 299-316, November.
- Raza, Syed Ali & Jawaid, Syed Tehseen, 2013. "Terrorism and tourism: A conjunction and ramification in Pakistan," Economic Modelling, Elsevier, vol. 33(C), pages 65-70.
- Syed Raza & Syed Jawaid, 2014. "Foreign capital inflows, economic growth and stock market capitalization in Asian countries: an ARDL bound testing approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(1), pages 375-385, January.
- Andreas Billmeier & Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asiaâ€”Institutions, Remittances, or Natural Resources?," IMF Working Papers 07/157, International Monetary Fund.
- Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
- Rodolfo Aquino, 2004. "A multifactor model of Philippine stock returns using latent macro risk factors," Applied Economics Letters, Taylor & Francis Journals, vol. 11(15), pages 961-968.
- Hock Wong, 2010. "Terms of trade and economic growth in Japan and Korea: an empirical analysis," Empirical Economics, Springer, vol. 38(1), pages 139-158, February.
- Siong hook Law & Muzafar shah Habibullah, 2009. "The Determinants Of Financial Development: Institutions, Openness And Financial Liberalisation," South African Journal of Economics, Economic Society of South Africa, vol. 77(1), pages 45-58, 03.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:48399. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.