Causality Relationship among Foreign Direct Investments, Gross Domestic Product and Exports for Pakistan

Abstract

The study of economic indicator is very vital for the assessment of overall performance of the economy in term of countrywide earnings. We are identifying the impact of some factors like FDI, GDP & export on economic growth and also recognize the relationship among GDP, FDI and exports in explaining the financial performance of the major nation like Pakistan and also identify the linkage on each other. With the help of time-series data from 1970 to 2012, this study investigates the causality relationship between FDI, GDP and exports in case of Pakistan economy. For this undertaking, statistical techniques like Unit root test of (ADF), Phillip Perron, Johansen’s co integration analysis and Granger causality have been used. By apply the unit root test of Phillip all variables become stationery at first difference which leads to co integration test. Co integration test shows that there is existence of a long run relationship ship among the variables. Granger causality consequences suggest that there is bi directional causality relationship exist among FDI and Exports and uni-directional relationship exist between GDP-Exports and GDP-FDI running from GDP to Exports and FDI. No causal relationship found between Exports to GDP and FDI to GDP.

Keywords: Foreign Direct Investment (FDI), Gross Domestic Product (GDP), Exports, Pakistan.