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Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis

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  • Muhammad Arshad Khan
  • Shujaat Ali Khan

Abstract

This paper establishes an empirical relationship between industry -specific foreign direct investment (FDI) and output under the framework of Granger causality and panel cointegration for Pakistan over the period 1981-2008. The result supports th e evidence of panel cointegration between FDI and output. FDI has a positive effect on output in the long run. The result also supports the evidence of long-run causality running from GDP to FDI, while in the short run, the evidence of two-way causality between FDI and GDP is identified. At the sectoral level, the effects of FDI on growth vary significantly across sectors. The most striking result obtained is that FDI causes growth in the primary and services sectors, while growth causes FDI in the manufacturing sector. [PIDE Working Paper No. 2011:67]. URL:[http://pide.org.pk/pdf/Working%20Paper/WorkingPaper-67.pdf].

Suggested Citation

  • Muhammad Arshad Khan & Shujaat Ali Khan, 2012. "Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis," Working Papers id:4683, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:4683
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    References listed on IDEAS

    as
    1. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    2. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    3. repec:bla:obuest:v:63:y:2001:i:2:p:153-71 is not listed on IDEAS
    4. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    5. Usha Nair‐Reichert & Diana Weinhold, 2001. "Causality Tests for Cross‐Country Panels: a New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    FDI; Growth; Cointegration; Causality; manufacturing sector; output; GDP; Granger causality; panel cointegration; Pakistan; primary; services sector; total factor productivity; technology transfer;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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