The Causality and Economic Impact of FDI inflows from Trade Partners in Pakistan

Syed Hasanat Shah, Bin He and Junjiang Li

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines causality between FDI, GDP, Exports and Domestic Investment by using Granger and multivariate Granger causality tests. The study also employs gravity based panel model to investigate the impact of FDI inflows from trade partners on GDP, trade and domestic investment in Pakistan. The results show that two-way causality runs between GDP, domestic investment and FDI, while unidirectional causality is detected from exports to FDI. Our panel data estimation confirms the positive role of FDI inflows in GDP and domestic investment while the results shows that the role of FDI is insignificant in case of exports and imports. Similarly, the concentration and sporadic FDI inflows from a few trade partners is adversely affecting GDP and increases imports without affecting domestic investment and exports. On the other hand minor FDI inflows from trade partners significantly contribute to GDP and decreases imports.

Keywords: trade partners; causality; gravity model; concentration (search for similar items in EconPapers)
JEL-codes: F14 F21 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cwa and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35645

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