The Causal Relationship between Foreign Direct Investment, Imports and Exports in Pakistan

Authors

Muhammad Irfan Chani Assistant Professor and HOD Economics, The University of Lahore, Pakpattan Campus, Pakistan Author
Muhammad Azam PhD Scholar, Federal Urdu University, Islamabad, Pakistan Author
Akmal Younas MBA Student, National College of Business Administration and Economics (NCBA&E), Lahore, Pakistan Author

Foreign Trade, FDI, Imports, Exports, Trade Balance, Trade Liberalization

This study evaluates the causal relationship between Foreign Direct Investment (FDI), imports and exports in

Pakistan by using the time series data from 1972to 2009. Ng. Parren Unit Root Test, Johansen Cointegration Test

and Granger Causality are used for empirical analysis. The results indicate that there is long run equilibrium

relationship among FDI, imports and exports. The estimates of causality test indicate that there is feedback

relationship between FDI and export performance in the country. Furthermore, the results are in favor of

bidirectional causality between imports and FDI. The inferences drawn from the study have stronger policy

implication for FDI.