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Foreign Capital Inflows and Growth in Pakistan

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  • Bushra Yasmin

    (Bushra Yasmin is Lecturer in Economics, Fatima Jinnah Women University, Rawalpindi, Pakistan. Email: bushrayasmin@yahoo.com)

Abstract

Developing countries have low levels of savings and investment. As a result most developing countries have to rely on Foreign Capital Inflows (FCI) to generate sufficient saving in order to achieve high levels of growth. Pakistan is one of those countries that rely heavily on external flows to supplement their savings and accelerate economic growth. The objective of this study is to find out the effect of FCI on the growth performance of Pakistan and vice versa. As the growth rate and FCI are expected to affect each other simultaneously, the Simultaneous Equation Model is applied on the aggregate time series data for the years 1970–71 to 2000–2001 for FCI, GNP and Savings. A positive and statistically significant relationship appears between FCI and growth. Further, it can be seen that Foreign Direct Investment (FDI) in FCI is highly significant and has contributed positively in the country's economic growth. The optimal policy which follows from these results is to bring changes in the composition of FCI and preferably to encourage FDI in order to enhance economic growth with the high growth level further affect FCI positively.

Suggested Citation

  • Bushra Yasmin, 2005. "Foreign Capital Inflows and Growth in Pakistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 6(2), pages 207-219, September.
    • Handle: RePEc:sae:soueco:v:6:y:2005:i:2:p:207-219
    DOI: 10.1177/139156140500600203
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    References listed on IDEAS

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    1. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
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    5. Naheed Z. Khan & Eric Rahim, 1993. "Foreign Aid, Domestic Savings and Economic Growth (Pakistan: 1960 to 1988)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 1157-1167.
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    Cited by:

    1. Muhammad Shahbaz & Amatul Razzaq Chaudhary & Syed Jawad Hussain Shahzad, 2020. "Is energy consumption sensitive to foreign capital inflows and currency devaluation in Pakistan?," Applied Economics, Taylor & Francis Journals, vol. 50(52), pages 5641-5658, June.

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