Does foreign capital inflows really stimulate domestic investment: a case study of Pakistan

Syed Hasanat Shah, Hafsa Hasnat and Junjiang Li

MPRA Paper from University Library of Munich, Germany

Abstract: By using system of equations and OLS estimation techniques, this paper examines the impact of foreign capital inflows on domestic investment in Pakistan. The system of equation shows that there is more than one-for-one relation between FDI and domestic investment, while the role of portfolio and loan in stimulating domestic investment is insignificant. The system of equation also shows that the impact of FDI on domestic investment is stronger than the role of domestic investment in attracting FDI. Similarly, OLS techniques confirmed that FDI complements domestic investment, particularly private investment. Contrary to other forms of capital inflows, FDI is positively and significantly correlated with domestic investment in different model specifications.

Keywords: capital inflows; domestic investment; system of equations; Pakistan (search for similar items in EconPapers)
JEL-codes: F21 F23 F41 (search for similar items in EconPapers)
Date: 2010, Revised 2011
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