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

Authors:
  • MRMohammad Mafizur Rahman
    Mohammad Mafizur Rahman
  • MSMuhammad Shahbaz
    Muhammad Shahbaz
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Abstract
The article investigates the impacts of imports and foreign capital inflows on economic growth of Pakistan over the period 1990 to 2010. We have applied the structural break autoregressive distributed lag (ARDL) bounds testing approach to cointegration to examine the long-run relationship between the variables. The vector error correction model (VECM) Granger causality multivariate framework is used to investigate the causal relationship between the series. Empirical analysis in this article confirms the long-run relationship between foreign capital inflows, imports and economic growth. The results indicate that foreign capital inflows and imports have positive and significant effect on economic growth in case of Pakistan. Causality analysis reveals the bidirectional causality between the variables, but strong causal relation is running from foreign capital inflows and imports to economic growth.

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