Impact of Foreign Capital Inflows on Economic Growth in Pakistan

Aurangzeb; Haq, Anwar Ul
March 2012
European Journal of Economics, Finance & Administrative Sciences;Mar2012, Issue 46, p6
Academic Journal
This study investigates the impact of foreign capital inflows on economic growth of Pakistan. The data used in this study were collected from the period of 1981 to 2010. Unit root test confirms the stationary of all variables at first difference. The multiple regression analysis technique is used to identify the significance of different factors. Results indicate that the all three independent variables are having positive and significant relationship with economic growth (GDP). The Granger-Causality test confirms the bidirectional relationship between remittances and external debt, GDP and external debt, foreign direct investment and external debt, and foreign direct investment and remittances. On the other side we found unidirectional relationship from gross domestic production to foreign direct investment. It is concluded that the foreign capital inflows are very important for the growth of any economy. It is recommended that the policy makers should focus on the foreign cash flows to increase the flow of money in economy in the sense of investment and increasing consumption.


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