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Trade Openness, Size of Economy and the Saving–Investment Relationship: A Dynamic Analysis for Pakistan

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  • Faiza Umer
  • Shaista Alam

Abstract

The main objective of this study is to examine the saving–investment relationship with the size of economy and trade openness in Pakistan during the period 1960–2011. For this purpose, the study employed vector auto-regression (VAR) to check simultaneity among trade openness, economic growth and saving–investment. Findings of the study confirm a significant positive relationship among trade openness, economic growth, saving and investment of Pakistan in the long run, but these do not establish a significant short-run relationship among trade openness, economic growth, savings and investment. In light of empirical results, the present study suggests that external sector development should be given due importance. For this purpose, the availability of credit should be enhanced properly. This will not only increase the saving rate in the country but also enhance domestic investment. JEL Classification: A11, B12, C13, D14

Suggested Citation

  • Faiza Umer & Shaista Alam, 2015. "Trade Openness, Size of Economy and the Saving–Investment Relationship: A Dynamic Analysis for Pakistan," South Asian Journal of Macroeconomics and Public Finance, , vol. 4(2), pages 233-257, December.
    • Handle: RePEc:sae:smppub:v:4:y:2015:i:2:p:233-257
    DOI: 10.1177/2277978715574618
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    More about this item

    Keywords

    Trade openness; economic growth; savings; investments; Vector Error Correction Model; impulse response function; variance decomposition;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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