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Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis

Author

Listed:
  • Sharafat, Ali
  • Hamid, Waqas
  • Muhammad, Asghar
  • Raheel Abbas, Kalroo
  • Muhammad, Ayaz
  • Mukhtyar, Khan

Abstract

Present study is focused to examine the effects of foreign capital flows on domestic investment in Pakistan economy for the period of 1972-2013. Time series econometric techniques like unit root test, Johansen cointegration and Granger causality methods have been used for the data analysis. Long run cointegration relationship has been found between domestic investment and foreign capital flow variables. Unidirectional causality running from external debt stock, remittances and domestic saving to domestic investment has been found. The causality between external debt servicing and investment is bidirectional. Bidirectional causality is also observed between foreign direct investment and domestic investment but causality between investment and inflation is confirmed in neither direction. The results are statistically robust and the estimated model is stable. The study suggests some policy recommendations.

Suggested Citation

  • Sharafat, Ali & Hamid, Waqas & Muhammad, Asghar & Raheel Abbas, Kalroo & Muhammad, Ayaz & Mukhtyar, Khan, 2013. "Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis," MPRA Paper 55640, University Library of Munich, Germany, revised 28 Apr 2013.
  • Handle: RePEc:pra:mprapa:55640
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    External Debt; Debt Servicing; Investment; Remittances; Domestic Saving; Cointegration; Granger Causality; Pakistan.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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