COMPOSITE IMPACT OF FOREIGN DIRECT INVESTMENT AND POLITICAL STABILITY ON ECONOMIC GROWTH OF PAKISTAN
The main objective of the study is to find the composite impact of foreign direct investment and Political stability on economic growth of Pakistan and secondly to investigate the impact of Foreign direct investment and political stability on the economic growth of Pakistan separately. Foreign direct investment has major and positive impact on growth, but this impact will be greater if there is political stability in the economy because in a developing country like Pakistan political stability plays a principal role in determination of economic growth and sources of capital accumulation. Therefore, the study draws the attention of policymakers towards the composite impact that emphasizes on FDI and political stability to increase the economic growth of Pakistan. The composite impact of FDI and political stability on economic growth is examined for the period of 1980 to2016 using ARDL (Auto Regressive Distributed Lag). Three models have been developed for three different reasons. First model is developed to check the impact of FDI on economic growth, second model is to check the impact of political stability on economic growth and the last model is developed to check the composite impact of FDI and political stability on economic growth. To find the presence of long run relationship among variables, the bound testing approach is applied while ECM (Error Correction Model) is used to find out the short-run relationship among variables. The results of long-run relationship indicate that foreign direct investment has a positive but insignificant relationship with economic growth, while political stability has significant and positive relationship with economic growth, and interactive term has also shown positive and significant relationship with economic growth. In the short run, 12 percent disequilibrium is being corrected annually. The findings recommend that the government should need to strengthen political system and institutions, improve the law and order situation in the country in this way FDI will flourish and there will be imperative impact on economic growth of a country.
Key Words: Interactive Term, Foreign Direct Investment, Political Stability.
Impact of Fiscal Policy on Output Gap: A Case Study of Pakistan
This preliminary study characterizes the dynamic effects of fiscal policy shocks on output gap (i.e. the difference between actual and potential output) in Pakistan and attempts to measure output gap using the production function approach. The contribution of this study to understand the nature of the fiscal policy variables and their impact on output gap in Pakistan over the short and long run. It employs a five variables Structural Vector Auto Regression model covering the time period 1975-2015. The identification problem of SVAR model is handled using the two approaches that is, the recursive approach also known as Cholesky decomposition and identification approach of Blanchard and Perotti. Interestingly this study suggests that impulse responses through both identification approaches behave in a similar fashion. Since the Blanchard and Perroti approach uses information about the elasticity of fiscal variables to economic activity which enables to identify the automatic response of fiscal policy, this study reveals a significant role of both the government expenditure and taxes in explaining the changes in output gap and in case of inflation study observed that Pakistan economy has been observing varying episodes of excess supply and demand pressures. The study recommended that government spending should be made to increase in the time of recession.
Keyword: Output gap, Fiscal policy and Structural Vector Auto Regressive Model
Impact of Foreign Capital Inflows on Economic Growth of Developing Countries
This thesis examines the outcome of foreign capital inflows (FCI) on economic growth of selected developing countries for the period of 1984 to 2016. Foreign Capital Inflow consists of remittances, official development assistance (ODA) and foreign direct investment (FDI). The data for analysis is taken from world bank development index. This thesis analyzes the relationship between FCI and economic growth in developing countries by using Production Function that is based on Exogenous and Endogenous growth theories. For this purpose, labor force (LF), inflation, gross capital formation (GCF), imports, and exports are included in the model. The study analyzes descriptively and graphically the FCI, economic growth and all other variables which are used in the model. This thesis tests the relation between FCI and economic growth of the selected developing countries empirically by applying the Random Effect Model (REM) and Fixed Effect Model (FEM) as all variables are stationary at level. The result shows a positive and statistically effect of FCI on economic growth. The other determinants that are labor force, gross capital formation and exports have also positive and significant effect on economic growth for all selected developing countries. This thesis also analyzes the impact of FCI on growth separately for low income countries, lower middle-income countries and upper middle-income countries separately. The Overall countries, lower income countries and upper middle countries result show a positive and significant relationship between FCI and economic growth, but the low-income countries result shows insignificant relationship.
Total Factor Productivity of Agriculture Sector and Economic Growth of Pakistan
The current research describes the Total Factor Productivity (TPF)of agriculture sector and GDP growth of Pakistan, by utilizing Autoregressive Distributed Lag model from 1980-2018. while constructing of the production function, we were utilized most of the common variables in the production function. In the constructing of productivity and input quantity index, the data of input and output were utilized respectively. The data of GDP, capital used in agriculture, and labor used in agriculture to obtain the agriculture TFP of Pakistan. The time series data from 1980-2018 was taken from various publications or official resources. For this study period the estimated annual average agriculture TFP growth was 2.14 percent and it contribute 58 percent to the overall agriculture output. The findings explain that the TFP of agriculture sector was highest 2.86 from few years and smallest 0.96 in 70s. In 80s as well as in 90s the growing rate of agriculture TFP was 2.24 and 2.46 percent. During the decade of 1970s,1980s,1990s, the TFP growth contributed around 33,53,81 and 81 percent to the agriculture productivity growth. The analysis of TFP of agriculture sector shows a variation in the TFP growth, it is due to the bad weather conditions, public interference and macroeconomics strategies.
The important goal of the research is to define the TFP of agriculture sector, and GDP growth of the country. A country like Pakistan, there is a difficulty to get the data of TFP of agriculture sector, it is not available in any approved document. So, the first intention of the research is to obtain the data of TFP of agriculture sector. First, we find out the agricultural sector TFP and then to find the GDP growth of the country, utilizing TFP being as an independent variable while calculating the GDP growth. Augment Dickey Fuller approach is employed to examine, the existence of unit root with variables. If the variables are not at stationary and not at level, then it will made at level by the 1st difference. The economic growth of the country is showing a positive as per the coefficient of the variables, as well as it is substantial in long and short run. Capital stock and labor show a positive impression on the TFP development of the agriculture region. Capital, labor, arable land, agriculture growth shows a clear and substantial impact on the GDP growth of Pakistan. As well as capital, labor and arable land gets a positive impact on the agriculture development, and that is a positive sign for the economic growth of the country. So the findings shows that there is a need to increase capital stock, skill labor, and cultivated land to increase the agriculture growth, and these are the key factors for the betterment of the agricultural TFP of Pakistan.
Impact of Urbanization and Globalization on Poverty in Pakistan
The objective of the current study is to investigate the impact of urbanization and globalization on poverty in Pakistan. The time series data is collected from World Development Indicator (WDI) website over the period from 1981-2017. The methodology is based on descriptive statistics, ADF unit root test and ARDL technique. The results of ARDL reveals that, Gross Domestic Product, Foreign Direct Investment and the interactive term of Urbanization and Globalization can reduce poverty, but Urbanization and Globalization solely cannot. The coefficient measuring joint impact of urbanization and globalization (Urb*Glob) has the value as -1.0323, which shows that 1% increase can reduce poverty by -1.0323 units. Thus, there is negative and statistically significant relationship between the interactive term (Urb*Glob) and poverty. The coefficient of GDP as -0.8775, shows that if there is 1% increase in GDP then poverty reduces by -0.8775 units. Thus, there is negative and statistically significant relationship between GDP and poverty. Coefficient value of urbanization 41.2700 shows that if there is 1% increase in urbanization then poverty increases by 41.2700 units. Thus, there is positive and statistically significant relationship between urbanization and poverty. The coefficient of FDI as -0.9877, shows that if there is 1% increase in globalization then poverty reduces by 0.9877 units. Thus, there is negative and statistically significant relationship between FDI and poverty. The coefficient value of CPI 0.3222, shows that if there is 1% increase in CPI then poverty increases by 0.3222 units. However, all independent variables are statistically significant at 5%.
Keywords: Urbanization, Globalization
The Impact of Change on Productivity of Rice in Case of Punjab
Climate condition help in choosing the right crop for a particular environment, while theprevailing weather condition of that environment decides the potentiality of the crop.Among the crop growth in Pakistan, rice is a sensitive crop that depends highly onweather condition. For instance, if the water is not the limiting factor then the mostimportant weather parameters to influence yield of rice are temperature and solarradiations. This study examined the impact of climate change on rice; one of the majoragricultural crop of Pakistan. The scientific data who obtained from Pakistan AgriculturalResearch Council (PARC-Islamabad and Rice Research Institute (Kala Shah Kaku) forthe period 1970-2017. The study used random and fixed effect models to achieve itsobjectives. The findings show that temperature has a positive and significant impact onrice production, but if used increase can become harmful. However, the rainfall does notaffect rice production at any stage of production. The former should be aware aboutclimate changes through awareness program. More over government awareness programshould be focused on Majors crops because these crops are largely contribute to GDP.
The Impact of Demographic Transition on Economic Growth of Pakistan
The demographic transition system is always bringing communal and economic modifications in the countries. Economic progress can have many beginning, but the current study focuses on demographic transition as a core foundation of economic growth. It has also encouraging observing the further connection between demographic transitions in promoting economic growth. Pakistan is also running with the demographic transition. Pakistan is in the initial periods of demographic transition in which the birth rate starts to lessen. It creates many unusual situation, options and challenges and opportunities. This type of situation creates many dangerous situations for under developing countries like Pakistan. Pakistan 2019 population is estimated at 216 million people at midyear according to UN data. This thesis examines the demographic transition impressions on economic progress of Pakistan. Once population growth is rising up day by day than problems creates in all the institutions of Pakistan. On the opposing, if suitable policies are not articulated, the demographic transition valor in point is a charge, leading to unemployment and an intolerable smash up on health, education, and old age security. The analyses are based on the time series data starting from 1975-2018 by means of the technique of Generalized Method of Movements for estimation.
Key words: Demographic transitions, economic growth, population, labor force, challenges,
Implications of Ease of Doing Business for Foreign Direct Investment: A Panel Data Analysis of Asian Countries
The study observes the overall business behavior in forty-five (45) Asian countries enlisted on the World Bank’s doing business index over the period from 2004 to 2019. The ten areas of doing business index are served as the explanatory variable in the study. The focus variables uses in study are GDPPC, inflation, population, and interest rate. The data of the variables extracted from the world development indicator and world doing business index. The study found the empirical association among doing business index indicators and foreign direct investment. This study strive to answer the question of why Asian nations entitled the highest FDI recipient countries over the world. Further, study found which business index indicators captured the greater attraction of foreign investors. For estimation purpose, the study uses fixed effect, random effect and two step instrumental variable technique. Doing business index indicators including starting a business, getting connection of electricity, getting construction permits, and registering the property when transferred, show statistically significant positive implication for FDI. In the same way, getting credit, protecting minority investors, resolving insolvency, and contract enforcement show statistically significant positive consequences for the inflow of FDI. There are only two factors, paying tax and trade across the border, show significant negative relation with FDI inflow. In order to attract more FDI, outcomes of the study help the policy maker to enhance the business environment in terms of the factors of ease of doing business. However, study recommends that; to improve FDI inflows significantly in future, there is greater need to improve efficiency in the enforcement of contracts, fair distribution of electricity and energy, improving taxes procedures and compliance enforcement and correctly dealing with construction permits.
Role of Blue Economy on Economic Growth: An Empirical Analysis of Pakistan.
Pakistan is naturally blessed with great blue potentials but unfortunately these potentials are underutilized. The basic purpose of this study is to quantify the blue economy and then its impact on economic growth of Pakistan. The ongoing study is a time series analysis from 1972 to 2018. The crucial part of our study is quantification of blue economy. For this we construct multidimensional index of blue economy. It is ever first attempt in this regard and even in the context of Pakistan. For this, we opt 13 variables and five dimensions of blue economy. We assign equal weights to each variable in each dimension. After tackling the measurement issues of blue economy, we developed an amended form of neo-classical production function as our econometric model in which we introduced blue economy as an engine of growth to solve the growth puzzle. The other supporting independent variables are human capital, inflation, and foreign direct investment. Our dependent variable is GDP. After checking the unit root order of all variables with the help of ADF and PP unit root tests, we estimate the model through Johansen and Juselius co-integration method. We do so to estimate the long run impact of blue economy on economic growth of Pakistan. Hereafter, to check the dynamic stability of our model we estimate the VECM form of our model and also test the different diagnostics tests for our model. The results of the study show that blue economy, human capital and foreign direct investment has positive impact on economic growth in the long run while inflation is negatively related to economic growth. Study finds natural resource (blue economy) as a blessing for our economy in the long run and we can say that blue economy is an engine of growth. The study wraps up with the effective policy recommendations like sustainable coastal management, improved marine policy along with ports efficiency, tourism development and sound development of aquaculture industry to vitalize blue economy potentials successfully. The effective, intelligent and judicious use of water resources can prove to be marvelous for the economic growth of Pakistan.
Key words: Gross Domestic Product (GDP), Blue Economy (BE), Human Capital (HC), Vector Error Correction Model (VECM), Sustainable Development Goals (SDGs).
The Socio-Economic Effects of Karakorum Highway (KKH): “A Case Study of Gilgit-Baltistan”
The road infrastructure in all the countries of the world has passed through the quickest advancement inside the closing decade. The impacts of the road infrastructure on sustainable development and improvement of the Socio-Economic conditions of the human being has become a concern for policymakers as well as economists. The objective of the study is to identify the effectiveness of Karakorum Highway on Socio-Economic development in Gilgit-Baltistan. This study is explanatory research. Before this study, no other studies had been done to measure the socio-economic impact of this highway on the humans of Gilgit-Baltistan. This study will show how much the build of this Highway has improved the socio-economic conditions of the people of Gilgit Baltistan. Primary data have used in the study for analyzing the results. The study has used Descriptive and Frequency Analysis to estimate the results. Data was collected through structural questionnaires from the people of the three selected districts of the Gilgit-Baltistan i.e. Hunza, Nager, Gilgit and 100 questionnaires were filled from each selected district to acquire the data. The findings of the study shows that 87% of the total sample sizes in the three selected districts have agreed that after the build of this highway, the livelihood opportunities have been improved in Gilgit-Baltistan. They think that Karakorum Highway helps to provide employment opportunities in the region. In the education sector, 80% of the total respondents in the three selected districts have agreed that Karakoram Highway helps to improve the enrollment rate and educational facilities in the region. Similarly, in the health sector, 87% of the total respondents in the three selected districts have agreed that since the build of Highway, the health facilities, availability of doctors and medicines have been improved in Gilgit-Baltistan. While in the tourism sector, 90% of the respondents in the three selected districts have agreed that Karakoram Highway is also helping in the influx of tourists in the G-B. Further, the findings show that this road infrastructure is helping the people of the region, by reducing the time of traveling and their transportation costs. Keywords: Socio-Economic Development, livelihood, Education, Health, Tourism, GilgitBaltistan
Guaging Energy Rebound Effect in Selected Energy Intensive Industries in Pakistan
Availability of energy at affordable prices plays a vital role in beautification of any economy and sector. Over the passage of time, energy consumption substitutes with efficient-energy consumption because it is desirable for the sustainable industrial growth. Energy efficiency is the supply side and energy consumption is demand side phenomenon. One main source of energy efficiency is technological advancement and it is expected that it lowers the energy demand or a factor of energy saving. But in many cases expected energy saving targets are not achieved due to energy rebound effect. The present study investigates the effect of the technological efficiency gain on energy consumption in three (Steel, Fertilizer, Cement) selected energy intensive industries of Pakistan. Moreover, study also drives a general expression of the energy rebound effect. For this purpose, Cobb Douglas production function is used and empirically analyzed with the help of time series data from 1978-2015. In three models output of each industry is a dependent variable, while gross fixed capital formation, labor and total energy consumption of each selected industry are independent variables. The confirmation of unit root level is a pre-request for efficient and consistent outcomes especially when we analyze time series data. On average the energy rebound effect of selected industries is about two hundred and sixteen percent. At disaggregate level the range of energy rebound effect is about 186% in fertilizer industry, 337% in cement and 127% in steel industry. In comparison with other international studies, the energy rebound effect of Pakistani industries is significant. It mean our industrial sector positively responds to energy efficiency by consuming more energy. Such a size of energy rebound is meaningful as well alarming for future generations in terms of environmental degradation. Without planning, energy efficiency may be proven counterproductive. So, policy makers should incorporate the energy rebound effect for better implications.
Keywords: Energy efficiency, Energy rebound effect, ARDL, ECM, Environment and efficiency
Determinants of Trade Cost of Agriculture and Manufacturing Sectors of Pakistan
Trade cost is considered as a driving force of bilateral trade pattern, thus impede
economic integration. Trade cost forms a potentially imperative barrier to trade. Higher
trade costs are an obstacle to trade and lessen the gains from trade. Determinants of trade
costs of Pakistan with its leading export partners: Bangladesh, China, India, Italy, Korea,
Kenya, Turkey, Saudi Arabia and Sri Lanka are investigated for the period of 2002-2017.
Some gravity model variables are deployed for analysis of determinants of trade cost. For
agricultural and manufacturing sectors, trade cost is calculated by applying a micro
founded trade costs measure. Estimation results of the analysis indicate that trade costs
equivalents show a decreasing trend during the period of study. Estimated generalized
least square model indicates that tariff, inflation and distance raises the bilateral trade
costs; whereas, advancement in port infrastructure and devaluation of exchange rate
reduce bilateral trade costs significantly. The comparative results also indicate that trade
cost for agriculture sector of Pakistan is higher as compared to manufacturing sector. The
study recommends that effective policy measures should be taken to reduce trade cost for
agriculture exports specifically. Bilateral tariff and inflation need to be lessened to
Keywords: Trade costs, Gravity model, LSCI, exchange rate, Pakistan
Impact of Economic Freedom and Economic Growth: A Case Study of Asian Countries
The phenomenon of economic growth has proved to be a necessary element in the prosperity of rich and poor economies. There are few factors involved in bringing the positive or negative results in the economic growth for different countries. Out of the various explanatory variables introduced in literature as factors of growth, yet this study highlights non-economic determinants of growth as this study is performed for analyzing the impact of economic freedom on economic growth for 42 Asian countries from 1995 to 2018. In order to examine impact on economic growth: overall score of economic and business freedoms, tax burdens, government integrity fiscal health, investment freedom, government spending, judicial effectiveness, property rights, labor freedom, monetary freedom, trade freedom, financial freedom, gross capital formation and employment to population ratio are taken as variables and used to carry out estimation of model. The descriptive analysis between economic freedom and economic growth is explained by Individual country analysis that shows the positive relationship between economic freedoms with economic growth. Panel data is used in this study by using some renowned techniques, such as fixed effect and random effect model. Thereafter, Hausman test is used to seek favorable results. According to Hausman test, fixed effect model is far dependable than that of random effect model by rejecting the null hypothesis. There is some issue of endogenity, therefore generalized method of moment (GMM) is used which is developed by Arellano and Bond in 1991. It shows the positive and statistically significant impact of economic freedom on economic growth of Asian countries. The proximate reason behind positive and significant impact is that the freedom to people in controlling their lives under less government influence on economic affairs which further help increase higher economic growth.
Key Words: Economic Freedom, Economic Growth, Gross Capital Formation, Employment to Population Ratio.
Innovations, Income Inequality and Economic Growth Nexus: A Cross Country Analysis
Due to complexity of relationship between innovation, income inequality and economic growth, the choice of measure is to be taken in this study of their interaction is very important. This study explains the effect of innovation on income inequality and impact of both innovation and income inequality on economic growth. In this study we have three panel of high, middle and low income countries, each panel have 20 countries with time frame of 1996 to 2018. The innovation was measured by two proxies i.e. Research and Development (R&D) % of GDP and Numbers of Patent Applications (PA), whereas income inequality was measured by GINI index and Economic Growth(GDP)was measured constant 2010 US$, all the data was taken from world development indicators (WDI) 2018. Generalized Method of Moment (GMM) model was used in this study to analysis the results. The results of the study indicated that in high income countries innovation play important role in economic growth and reduce in income inequality. In middle income countries innovation contribution is very low and innovation impact on income inequality is insignificant, while in low income countries innovation have good impact on economic growth and innovation impact on income inequality also have significant results. Income inequality of all high, middle and low income countries have negative impact on economic growth. Suggestion of this study is to increase the investment on R&D which reduced the income inequality and also help to gain the sustainable growth rate.