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Title Effect of Foreign Direct Investment on Trade: A Comparative Analysis of Pakistan and China

Author(s) Zeeshan Umer

Abstract Abstract Present study analysis the causal links of FDI with trade in Pakistan and China using time series data of both countries from 1972 to 2016 duration.. The sources of data are World Bank and Ministry of Finance Pakistan. The impact of FDI on trade in case of Pakistan and China have been analyzed by employing ARDL Model as variables have mixed order of integration i.e., I(1) and I(0). The results show that there exists the relationship of co-integration among the variables. In the first model, the relationship between the trade and FDI, employed labor force, Inflation, and current account deficit exist. The results show that there exist the relationship among trade volume, exchange rate, FDI and employed labor force. It is evident from the results that the co-integration can be confirmed from the F-stats, which is going to exceed the upper bound limit. The value of estimator of FDI for trade which shows that there is significant and positive impact of FDI on trade which means FDI is going to increase the trade in case of Pakistan. While the impact of exchange rate on trade is also positive and significant. Inflation has also positive impact on the trade. the short run impact indicate that exchange rate has positive associated with trade. The size of the economy proxies by the RGDP is also has significant and positive impact on the trade in case of Pakistan. The mixed findings revealed by the past studies, in addition to the findings of this study. The coefficient of foreign direct investment is 3.2143 which show positive impact of FDI on trade for Pakistan. The coefficient of CEt-1 is (-.39822) for short run model, means that it will take half of the ear around to reach lng run from short run. The coefficient of FDI in case of china is positive on trade (TR). Beside this the impact of inflation is also positive and significant. The impact of ER for the export of china is also positive and significant. The research findings show that the relationship between these two can be treated as complimentary as well as substitute. But depending on the circumstances, these can be treated as compliment as well as substitute. The government should focus on macroeconomic environment, like that of exchange rate, current account, the size of the economy, and the FDI in order to increase the trade in the both counties, and to formulate the policy to enhance the bilateral trade among the countries.

Type Thesis/Dissertation MS

Faculty Management Sciences

Department Economics

Language English

Publication Date 2019-03-25

Subject MPhil Economics

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