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Economics Research International
Volume 2014 (2014), Article ID 592719, 5 pages
http://dx.doi.org/10.1155/2014/592719
Research Article

Domestic Investment, Foreign Direct Investment, and Economic Growth Nexus: A Case of Pakistan

Department of Economics, Gomal University, D.I. Khan 29050, Pakistan

Received 18 April 2014; Accepted 11 June 2014; Published 29 June 2014

Academic Editor: Raouf Boucekkine

Copyright © 2014 Irfan Ullah et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This study aims to find dynamic interaction between domestic investment, foreign direct investment, and economic growth in Pakistan for the period 1976–2010. Phillips and Perron (PP) test is used to assess unit root in the concerned data series. Johansen cointegration approach applied to examine the long run relationship and Toda-Yamamoto causality approach is exercised to evaluate causal linkages. Besides foreign direct investment inflow to Pakistan and domestic investments variables, this study also used GDP as a third variable in order to avoid misspecification problems in the model and also to know the interrelationship between the variables. The empirical findings of this study reveal the existence of long run relationship between domestic investments, foreign direct investment, and economic growth, further supported by Toda-Yamamoto causality, and bidirectional causality has been found between FDI and domestic investment implying that both domestic investment and FDI cause each other.