The topic of Foreign Capital Inflows (FCI) to Pakistan got much attention in empirical literature, but the existing literature on FCI about Pakistan mostly used the customary econometric tools like OLS, 2SLS, FIML and 3SLS for analysis. However, we know that most of the macroeconomic variables are non-stationary, which mandates the re-examination of the past studies using new time-series tools like cointegartion and ECM. Thus, the present book re-examines the macroeconomic role of Foreign Capital Inflows (FCI) in Pakistan through applying vector error correction model (VECM) on annual time-series data for the period of 1972-2006.
The present study does not find any evidence for direct positive impact of aggregate FCI on GDP growth and Investment (capital formation). However, the study finds the positive (complementary) relationship between FCI and domestic saving, thus suggesting an indirect positive impact of FCI on GDP through supplementing domestic resources. These results seem contradicting i.e. positive relation with domestic savings but negative linkages with investment and growth. However, we can interpret it as that FCI is supplementing the domestic resources and there is a need and justification for FCI in Pakistan due the shortage of domestic savings. But, these inflows of foreign capital are not transforming in the productive investment and thus not boosting economic growth. As this study shows that most of FCI are of non-investment (non FDI) type and are concentrated in the selected non-export-oriented and less-employment-generating sectors. In addition, the present study finds that exchange rate depreciation and current account deficit causes more inflows of foreign capital in Pakistan. While FCI also results in increasing the import of goods and services in Pakistan.
Subsequently, the present study suggests some policy recommendations like: (i) to target and identify the potential sectors for inviting the inflows of foreign capital, (ii) to change in composition of existing FCI, from non-FDI to FDI (investment) forms of FCI, (iii) to diversify the existing FCI from non-tradable and less job-oriented sectors to the tradable (export-oriented) and specially in agricultural-related manufacturing sectors, (iv) to mobilize the domestic resources, that will reduce the reliance on foreign assistance, and (v) to control the current account deficit and to stabilize the exchange rate, which will be helpful in reducing the reliance on foreign capital.
Inhaltsverzeichnis (Table of Contents)
- Executive Summary (Abstract)
- Introduction
- Background and Statement of Problem
- Research Question
- Research Objectives
- Significant Contributions of the Study
- Organisation of the Book
- Review of Selected Literature
- FCI and Economic Growth: A Review of Literature
- FCI and Domestic Savings: A Review of Literature
- FCI and Investment: A Review of Literature
- FCI and Exchange Rate: A Review of Literature
- Some Other Aspects of FCI: A Review of Literature
- Research Design
- Foreign Capital Inflows: A Theoretical Framework
- Hypotheses to be tested
- Data Specifications
- Types and Measurement of FCI
- Variables Description
- Sources of the Data and Sample Period
- Model Specifications
- FCI and GDP: Vector Error-Correction Model (3.1)
- FCI and Investment: Vector Error-Correction Model (3.2)
- FCI and Savings: Vector Error-Correction Model (3.3)
- FCI and CAD: Vector Error-Correction Model (3.4)
- FCI and Exchange Rate: Vector Error-Correction Model (3.5)
- FCI and Imports: Vector Error-Correction Model (3.6)
- Research Methodology
- FCI Statistics: Some Evidence from Pakistan
- Foreign Capital Inflows to Pakistan: Trends 1972-2006
- Trends, Composition and Sector-Wise Distribution of FCI in Pakistan
- Composition of FCI in Pakistan (19976-2006)
- Sector-wise Distribution of FCI in Pakistan
- Current Account Deficit and FCI in Pakistan
- A Need-Based Analysis of FCI in Pakistan
- Savings-Investment Gap in Pakistan
- Export-Import Gap and FCI in Pakistan
- Econometric Analysis
- FCI and GDP: Econometric Analysis and Results
- FCI and GDP: Unit Root Test & Order of Integration
- FCI and GDP: VAR Lag-Order Selection
- FCI and GDP: Johansen Cointegration Test Results
- FCI and GDP: VECM Estimations and Results
- FCI and GDP: Impulse Response Function
- FCI and GDP: Results and Findings
- FCI and Investment: Econometric Analysis and Results
- FCI and Investment: Unit Root Test & Order of Integration
- FCI and Investment: VAR Lag-Order Selection
- FCI and Investment: Johansen Cointegration Test
- FCI and Investment: VECM Estimation and Results
- FCI and GCF: Impulse Response Function
- FCI and GCF: Results and Findings
- FCI and Savings: Econometric Analysis and Results
- FCI and Savings: Unit Root Test & Order of Integration
- FCI and Savings: VAR Lag-Order Selection
- FCI and Savings: Johansen Cointegration Test
- FCI and Savings: VECM Estimation and Results
- FCI and GDS: Impulse Response Function
- FCI and GDS: Results and Findings
- FCI and Current Account Deficit: Econometric Analysis and Results
- FCI and CAD: Unit Root Test & Order of Integration
- FCI and CAD: VAR Lag-Order Selection
- FCI and CAD: Johansen Cointegration Test
- FCI and CAD: VECM Estimation and Results
- FCI and CAD: Impulse Response Function
- FCI and CAD: Results and Findings
- FCI and Exchange Rate: Econometric Analysis and Results
- FCI and Exchange Rate: Unit Root Test & Order of Integration
- FCI and Exchange Rate: VAR Lag-Order Selection
- FCI and Exchange Rate: Johansen Cointegration Test
- FCI and Exchange Rate: VECM Estimation and Results
- FCI and Exchange Rate: Impulse Response Function
- FCI and Exchange Rate: Results and Findings
- FCI and Imports: Econometric Analysis and Results
- FCI and Imports: Unit Root Test & Order of Integration
- FCI and Imports: VAR Lag-Order Selection
- FCI and Imports: Johansen Cointegration Test
- FCI and Imports: VECM Estimation and Results
- FCI and IMP: Impulse Response Function
- FCI and IMP: Results and Findings
- FCI and GDP: Econometric Analysis and Results
- Econometric Analysis
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This book aims to re-examine the macroeconomic analysis of foreign capital inflows in Pakistan using a vector error correction approach. The study seeks to provide insights into the impact of foreign capital inflows on various macroeconomic variables, such as GDP, investment, savings, current account deficit, and the exchange rate. Key themes and objectives include:- Investigating the long-term relationship between foreign capital inflows and key macroeconomic variables in Pakistan.
- Assessing the short-term dynamics and causal relationships between foreign capital inflows and macroeconomic variables.
- Examining the impact of foreign capital inflows on economic growth, investment, and savings in Pakistan.
- Analyzing the role of foreign capital inflows in influencing the current account deficit and exchange rate.
- Developing policy recommendations based on the empirical findings to enhance the benefits and manage the potential risks associated with foreign capital inflows.
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction This chapter sets the stage for the study by providing background information on foreign capital inflows in Pakistan, outlining the research question, objectives, and significant contributions of the study. It also provides a brief overview of the book's organization.
- Chapter 2: Review of Selected Literature This chapter delves into a comprehensive review of existing literature concerning the relationship between foreign capital inflows and various macroeconomic variables, including economic growth, domestic savings, investment, exchange rate, and other relevant aspects.
- Chapter 3: Research Design This chapter outlines the theoretical framework of the study, defining foreign capital inflows and specifying the hypotheses to be tested. It also details the data sources, variables, and the Vector Error-Correction Model (VECM) used for analysis.
- Chapter 4: FCI Statistics: Some Evidence from Pakistan This chapter provides statistical evidence on foreign capital inflows in Pakistan, covering trends, composition, sector-wise distribution, and analyzes the relationship between FCI and current account deficit, as well as examining the need-based analysis and savings-investment gap in Pakistan.
- Chapter 5: Export-Import Gap and FCI in Pakistan This chapter presents the econometric analysis and results, focusing on the relationship between FCI and GDP, investment, savings, current account deficit, and the exchange rate. It utilizes unit root tests, VAR lag-order selection, Johansen cointegration tests, and VECM estimations.
Schlüsselwörter (Keywords)
The study focuses on foreign capital inflows (FCI) in Pakistan and its impact on macroeconomic variables, utilizing econometric techniques such as Vector Error-Correction Model (VECM), Johansen cointegration test, and impulse response functions. It also examines the role of foreign capital inflows in influencing economic growth, investment, savings, current account deficit, and exchange rate. Key terms include foreign capital inflows, economic growth, investment, savings, current account deficit, exchange rate, Pakistan, vector error correction model (VECM), cointegration test, impulse response function, and macroeconomic analysis.- Quote paper
- Ghulam Mohey-ud-din (Author), 2008, The Macroeconomic Analysis of Foreign Capital Inflows in Pakistan, Munich, GRIN Verlag, https://www.grin.com/document/169492
