Impact of Trade Openness, FDI, Exchange Rate and Inflation on Economic Growth: A Case Study of Pakistan

Bibi, Sadia; Ahmad, Syed Tauqeer; Rashid, Hina

doi:10.5296/ijafr.v4i2.6482

Cited by 37 publications

(44 citation statements)

References 9 publications

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“…Sayek (2009) suggest using investment-smoothing possibility from FDI to reduce the real negative effects of inflation. The results from this research do not deviate much from existing literature, the hypothesis of the existence of a co-integration relationship in the long run among variables is accepted similarly in the findings of Dorantes & Pozo (2001), Bibi et al, (2014), Simionescu (2016), and Kueh & Yong (2018). Besides that, the long-run causality relationship between REER, Inflation, and GDP towards FDI is consistent with the results of Amoah et al, (2015).…”

Section: Resultssupporting

confidence: 90%

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Macroeconomic Variables and Foreign Direct Investment Inflows in Turkey

Meftah¹,

Nassour

2019

Signifikan

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Foreign direct investment (FDI) is an essential factor in the development of a country. This study aims to examine what factors influence foreign direct investment. By using the vector error correction model, the research shows that there is a long-term causality relationship between exchange rates and inflation with FDI. However, in the short term, there are no variables that affect FDI. Besides, the Granger causality test shows causality in the direction of GDP and FDI, while other variables do not have causality. This research has implications for policymakers to pay attention to macroeconomic variables in increasing the flow of foreign direct investment. AbstrakInvestasi asing langsung (FDI) merupakan salah satu faktor penting dalam pembangunan di suatu negara. Penelitian ini bertujuan untuk menguji faktor apa saja yang memengaruhi investasi asing langsung. Dengan menggunakan model vektor koreksi kesalahan ditemukan bahwa terdapat hubungan kausalitas jangka panjang antara nilai tukar dan inflasi dengan FDI. Akan tetapi, dalam jangka pendek tidak ada satupun variabel yang memengaruhi FDI. Selain itu, uji kausalitas Granger menunjukkkan kausalitas yang searah antara PDB dengan FDI, sementara variabel lain tidak memiliki hubungan kausalitas. Penelitian ini berimplikasi kepada para pengambil kebijakan untuk memperhatikan variabel-variabel makroekonomi dalam meningkatkan arus investasi asing langsung.Kata Kunci: investasi asing langsung, variabel makroekonomi, model vektor koreksi kesalahan JEL Code: F21, H60

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Section: Resultssupporting

confidence: 90%

“…Additionally, inflation has been hypothesized to distort the tax system that would, in turn, discourage investors for the long run due to money illusion (Omankhanlen, 2011). Furthermore, Bibi et al (2014) show that there is a long-run relationship between the variables. The inflation rate is negatively related to economic growth.…”

Section: Introductionmentioning

confidence: 93%

Macroeconomic Variables and Foreign Direct Investment Inflows in Turkey

Meftah¹,

Nassour

2019

Signifikan

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“…In Bangladesh, Adhikary [41] explored the relationship among FDI, trade openness, capital formulation, and economic growth, and the results showed that FDI and capital formulation affected the economic growth positively and significantly, while trade openness was adversely linked with economic growth. Another study proposed by Bibi et al [42] explored a negative association between trade openness and economic growth. The outcomes of DOLS cointegration regression indicated that a 1% increase in trade openness would reduce economic growth by 1.091% due to exchange rate depreciation in particular economies.…”

Section: Introductionmentioning

confidence: 99%

Impact of Trade Openness and Human Capital on Economic Growth: A Comparative Investigation of Asian Countries

et al. 2020

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The aim of this study is to analyze the impact of trade openness and human capital on economic growth in 19 Asian countries from 1985 to 2017. We selected two geographically distributed regions (Western and Southern Asia) based on difference in their GDP per capita. We applied the unit root tests to examine the level of stationarity and found that all variables were integrated at first difference. Kao and Fisher cointegration tests were employed and the results revealed the presence of a long-run relationship. We applied fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) models to check the magnitude of the long-run coefficients among trade openness, human capital and economic growth. To investigate the direction of causality, we used a Dumitrescu and Hurlin (DH) causality test. The results indicated that trade openness and human capital have a significant and positive relationship while labor force participation has a negative effect on economic growth in Southern Asia, and in the case of Western Asia, the impact is positive. Foreign direct investment (FDI) has a negative and significant impact on GDP per capita (GDPPC) in Western Asia while it is positive and significant in Southern Asia; Total population (TPOP) has a negative impact on GDPPC in both regions. Furthermore, human capital has a positive and significant impact on trade openness in both panels. Meanwhile, labor force participation (LFP) has a positive and significant impact on trade openness in Southern Asia and a negative impact in the case of Western Asia. Trade openness and economic growth have bidirectional causality in Western Asia and unidirectional causality in Southern Asia. It also shows that human capital and economic growth have unidirectional causality in both regions. promotes growth in several ways. It increases capital formulation and expands markets through an increase in investment [4,5]. It creates enormous benefits to the country's industrial sectors through developing new methods of production and increases the level of employment by creating more job opportunities, and may lead to poverty reduction [6]. There are three tools to measure the ratio of trade openness: one of them is the ratio of total trade volume (import and export) to GDP [7]; the second is the ratio of import and export to total population [8], and finally it can be calculated on the basis of tariff rates. In the current economic scenario, no country can develop successfully without trade openness, investment, and the migration of people. Published literature explored the positive impact of labor productivity on trade openness [9,10]. Trade openness and FDI bring technological transformation in an economy and also help to enhance the human capital of that particular economy [11].Human capital is also observed as a fundamental source of economic growth [12]. It enhances the total productivity level and potential earnings of the labor force [13]. Human capital is also estimated by skills, qualification, ability to create new produ...

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“…Exchange rate plays a vital role in a country's level of trade, which is critical to most, or all, free market economies in the world. Its variance is persistent and serially correlated long-term economic growth providing a relationship between interest rate, inflation rate and exchange rate volatility in Malaysia covering the period between 1999 and 2009 (Asari et al, 2011).A study has been done on empirical analysis to find out the role of trade openness, inflation, imports, exports, real exchange rate and foreign direct investment in enhancing economic growth in Pakistan for the period 1980 to 2011 (Bibi, 2014). This study concluded that a similar effect would take place on trade imbalance and the stock market, as some have already asserted.…”

Section: Outsourcing and Us Industriesmentioning

confidence: 99%

Sustainability of Economy: Inflation vs Interest Rates

Goonatilake¹,

Reyes²

2019

JBEP

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An economy is said to be sustainable when there is harmony between various economic factors, including inflation and interest rates as they play a pivotal role in the economic affairs of a nation. Inflation determines the extent of borrowing power among its people. If consumers have more money, they can spend, causing the economy to grow and inflation to subdue. Inflation and interest rates are closely related to each other and are frequently referenced together in economics literature. This paper sheds light on this relationship together with its effects on various economic factors associated with a market economy. The purpose of this paper is to discuss and elaborate on some of the consequences that provide uncertainties throughout the world, which are causing inflation to rise. Inflation can be effected by other economic phenomenon such as unemployment, globalization, outsourcing, migration, and terrorism. The effects of them are also revisited. Finally, the significance of association between the relationship of inflation and interest rates is statistically justified.

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Impact of Trade Openness, FDI, Exchange Rate and Inflation on Economic Growth: A Case Study of Pakistan

Cited by 37 publications

References 9 publications

Macroeconomic Variables and Foreign Direct Investment Inflows in Turkey

Macroeconomic Variables and Foreign Direct Investment Inflows in Turkey

Impact of Trade Openness and Human Capital on Economic Growth: A Comparative Investigation of Asian Countries

Sustainability of Economy: Inflation vs Interest Rates

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