IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/29805.html
   My bibliography  Save this paper

Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan

Author

Listed:
  • Rahman, Mohammad Mafizur
  • Shahbaz, Muhammad

Abstract

The paper investigates the effects of imports and foreign capital inflows on economic growth in case of Pakistan over the period of 1990Q1-2008Q4. We have applied ARDL bounds testing approach to examine the long run relationship and investigated the direction of causality by using VECM multivariate framework. Our analysis confirms the long run relationship between imports, foreign capital inflows and economic growth. The results show that imports and foreign capital inflows have positive and significant effect on the economic growth of Pakistan. Causality analysis reveals bidirectional causal association among the variables, but strong causality is found from imports and foreign capital inflows to real GDP.

Suggested Citation

  • Rahman, Mohammad Mafizur & Shahbaz, Muhammad, 2011. "Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan," MPRA Paper 29805, University Library of Munich, Germany, revised 24 Mar 2011.
    • Handle: RePEc:pra:mprapa:29805
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/29805/1/MPRA_paper_29805.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Local Technological Capability and Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 11, pages 177-186, Palgrave Macmillan.
    2. Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994. "Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," SSE/EFI Working Paper Series in Economics and Finance 2, Stockholm School of Economics.
    3. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    4. Jordan Shan, 2005. "Does financial development 'lead' economic growth? A vector auto-regression appraisal," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1353-1367.
    5. Muhammad SHAHBAZ & Rana Ejaz Ali KHAN, 2010. "Old Wine in New Bottles: Saving – Growth Nexus: Innovative Accounting Technique in Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 7(7(548)), pages 49-60, July.
    6. Kevin Honglin Zhang, 2001. "How does foreign direct investment affect economic growth in China?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(3), pages 679-693, November.
    7. 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.
    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    10. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Productivity Convergence in Mexico," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 9, pages 134-159, Palgrave Macmillan.
    11. 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.
    12. Talan Iscan, 1998. "Trade liberalisation and productivity: A panel study of the Mexican manufacturing industry," Journal of Development Studies, Taylor & Francis Journals, vol. 34(5), pages 123-148.
    13. Shandre Mugan Thangavelu & Gulasekaran Rajaguru, 2004. "Is there an export or import-led productivity growth in rapidly developing Asian countries? a multivariate VAR analysis," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1083-1093.
    14. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, vol. 39(1), pages 59-84, July.
    15. repec:bla:econom:v:41:y:1974:i:162:p:176-93 is not listed on IDEAS
    16. Muhammad Shahbaz & Khalil Ahmad & A. R. Chaudhary, 2008. "Economic Growth and Its Determinants in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 471-486.
    17. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    18. Muhammad Shahbaz & Nuno Carlos leitão & Summaira Malik, 2011. "Foreign Direct Investment-Economic Growth Nexus: The Role of Domestic Financial Development in Portugal," Economics Bulletin, AccessEcon, vol. 31(4), pages 2824-2838.
    19. Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(1), pages 1-16.
    20. John Asafu‐Adjaye & Debasish Chakraborty, 1999. "Export‐led Growth and Import Compression: Further Time Series Evidence From LDCs," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 164-175, June.
    21. Marc-Andreas Muendler, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," CESifo Working Paper Series 1148, CESifo.
    22. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    23. Vijaya Ramachandran & Manju Kedia Shah, 1999. "Entrepreneurship and Firm Performance in Sub-Saharan Africa," World Bank Publications - Reports 9853, The World Bank Group.
    24. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    25. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    26. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    27. Rene Teboul & Emmanuelle Moustier, 2001. "Foreign aid and economic growth: the case of the countries south of the Mediterranean," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 187-190.
    28. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    29. Muhammad Shahbaz & S M Aamir Shamim & Naveed Aamir, 2010. "Macroeconomic Environment and Financial Sector’s Performance: Econometric Evidence from Three Traditional Approaches," The IUP Journal of Financial Economics, IUP Publications, vol. 0(1 & 2), pages 103-123, March & J.
    30. Wang, Jian-Ye, 1990. "Growth, technology transfer, and the long-run theory of international capital movements," Journal of International Economics, Elsevier, vol. 29(3-4), pages 255-271, November.
    31. Linda Cotton & Vijaya Ramachandran, 2001. "Foreign Direct Investment in Emerging Economies: Lessons from Sub-Saharan Africa," WIDER Working Paper Series DP2001-82, World Institute for Development Economic Research (UNU-WIDER).
    32. Jim Love & Ramesh Chandra, 2005. "Testing export-led growth in South Asia," Journal of Economic Studies, Emerald Group Publishing, vol. 32(2), pages 132-145, May.
    33. Hakan Çetintaş & Salih Barişik, 2009. "Export, Import and Economic Growth: The Case of Transition Economies," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 15(4), pages 636-649, February.
    34. Awokuse, Titus O., 2007. "Causality between exports, imports, and economic growth: Evidence from transition economies," Economics Letters, Elsevier, vol. 94(3), pages 389-395, March.
    35. Vijaya Ramachandran & Manju Kedia Shah, 1999. "Minority entrepreneurs and firm performance in sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 36(2), pages 71-87.
    36. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810, April.
    37. Muhammad Shahbaz, 2010. "Income inequality‐economic growth and non‐linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(8), pages 613-636, July.
    38. 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.
    39. Anjum Aqeel & Mohammed Nishat, 2004. "The Determinants of Foreign Direct Investment in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 651-664.
    40. Jamshid Damooei. & Tavakoli, Akbar., 2006. "The Effects of Foreign Direct Investment And Imports on Economic Growth: A Comparative Analysis of Thailand and the Philippines (1970-1998)," Journal of Developing Areas, Tennessee State University, College of Business, vol. 39(2), pages 79-100, January-M.
    41. Robert Z. Lawrence & David E. Weinstein, 1999. "Trade and Growth: Import-Led or Export-Led? Evidence From Japan and Korea," NBER Working Papers 7264, National Bureau of Economic Research, Inc.
    42. Titus Awokuse, 2007. "Trade openness and economic growth: is growth export-led or import-led?," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 161-173.
    43. Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February.
    44. Niels Hermes & Robert Lensink, 2003. "Foreign direct investment, financial development and economic growth," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 142-163.
    45. Mohsin Hasnain Ahmad & Shaista Alam & Mohammad Sabihuddin Butt, 2003. "Foreign Direct Investment, Exports, and Domestic Output in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 715-723.
    46. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    47. Jesko Hentschel, 1992. "A note on the relationship between imports and growth," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(2), pages 339-345, June.
    48. Martin KHOR, 2000. "Globalization And The South: Some Critical Issues," UNCTAD Discussion Papers 147, United Nations Conference on Trade and Development.
    49. Paul Turner, 2006. "Response surfaces for an F-test for cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 479-482.
    50. Baumol, William J. & Nelson, Richard R. & Wolff, Edward N. (ed.), 1994. "Convergence of Productivity: Cross-National Studies and Historical Evidence," OUP Catalogue, Oxford University Press, number 9780195083903.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad Shahbaz & Mohammad Mafizur Rahman, 2012. "The Dynamic of Financial Development, Imports, Foreign Direct Investment and Economic Growth: Cointegration and Causality Analysis in Pakistan," Global Business Review, International Management Institute, vol. 13(2), pages 201-219, June.
    2. SBIA, Rashid & Al Rousan, Sahel, 2015. "Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization," MPRA Paper 64599, University Library of Munich, Germany.
    3. Muhammad, Shahbaz & Mohammad, Mafizur Rahman & Abdul, Farooq, 2012. "Financial Development, International Trade and Economic Growth in Australia:New Evidence from Multivariate Framework Analysis," MPRA Paper 42023, University Library of Munich, Germany, revised 17 Oct 2012.
    4. Muhammad Shahbaz & Nuno Carlos leitão & Summaira Malik, 2011. "Foreign Direct Investment-Economic Growth Nexus: The Role of Domestic Financial Development in Portugal," Economics Bulletin, AccessEcon, vol. 31(4), pages 2824-2838.
    5. Della Temenggung, 2007. "Productivity Spillovers from Foreign Direct Investment: Indonesian Manufacturing Industry’s Experience 1975-2000," DEGIT Conference Papers c012_048, DEGIT, Dynamics, Economic Growth, and International Trade.
    6. Alaya MAROUANE & Dalila NICET-CHENAF & Eric ROUGIER, 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA (2007-2019) 2008-27, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    7. 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.
    8. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    9. Bibhuti Sarker & Farid Khan, 2020. "Nexus between foreign direct investment and economic growth in Bangladesh: an augmented autoregressive distributed lag bounds testing approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-18, December.
    10. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    11. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    12. Abdullahi Ahmed & Enjiang Cheng & George Messinis, 2011. "The role of exports, FDI and imports in development: evidence from Sub-Saharan African countries," Applied Economics, Taylor & Francis Journals, vol. 43(26), pages 3719-3731.
    13. Rosemary Stanley Taylor, 2020. "Foreign direct investment and economic growth. Analysis of sectoral foreign direct investment in Tanzania," African Development Review, African Development Bank, vol. 32(4), pages 699-717, December.
    14. Shahbaz, Muhammad & Mohammad, Mafizur Rahman, 2014. "The Dynamics of Exports, Financial Development and Economic Growth in Pakistan: New Extensions from Cointegration and Causality Analysis," MPRA Paper 53225, University Library of Munich, Germany, revised 19 Jan 2014.
    15. Maria Cipollina & Giorgia Giovannetti & Filomena Pietrovito & Alberto F. Pozzolo, 2012. "FDI and Growth: What Cross-country Industry Data Say," The World Economy, Wiley Blackwell, vol. 35(11), pages 1599-1629, November.
    16. Vinish Kathuria, 2019. "Growth and Investment: Testing for the Relationship for South Asian Countries," Millennial Asia, , vol. 10(3), pages 337-371, December.
    17. Liu, Xiaming & Parker, David & Vaidya, Kirit & Wei, Yingqi, 2001. "The impact of foreign direct investment on labour productivity in the Chinese electronics industry," International Business Review, Elsevier, vol. 10(4), pages 421-439, August.
    18. Chee-Keong Choong, 2012. "Does domestic financial development enhance the linkages between foreign direct investment and economic growth?," Empirical Economics, Springer, vol. 42(3), pages 819-834, June.
    19. George Galanos & Thomas Poufinas, 2018. "Impact of FDI in the Fiscal Adjustment Process," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(3), pages 265-277, August.
    20. Rashid Sbia & Sahel Alrousan, 2016. "Does Financial Development Induce Economic Growth in UAE? The Role of Capitalization and Foreign Direct Investment," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 703-710.

    More about this item

    Keywords

    Imports; FDI; Growth; Pakistan;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:29805. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.