Quality & Quantity

, Volume 45, Issue 1, pp 223–231 | Cite as

Foreign direct investment, trade openness and economic growth in pakistan and turkey: an investigation using bounds test

  • Mushtaq Ahmad KlasraEmail author
Research Note


In the literature empirical evidences regarding export-led growth (ELG), FDI-led exports, and growth-driven exports (GDE) hypotheses have been mixed and inconclusive. This paper uses the autoregressive distributed lags (ARDL) model (Pesaran and Shin, Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, 1990) and tests the existence of long run equilibrium relationship between the determinants of growth during the period 1975–2004 for Pakistan and Turkey. The results indicate that in the short run there is bi-directional causal relationship between trade openness and exports for Pakistan and FDI and exports relationship for Turkey. The long run relationship results support the growth-driven exports hypothesis for Turkey and openness-growth nexus in Pakistan.


Economic growth Foreign direct investment Autoregressive distributed lags model (ARDL) Causality Pakistan and Turkey 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ahmed N.: Export response to trade liberalization in Bangladesh: a cointegration analysis. Appl. Econ. 32, 1077–1084 (2002)CrossRefGoogle Scholar
  2. Arslan I., Wijnbergen S.V.: Export incentives, exchange rate policy and export growth in Turkey. Rev. Econ. Stat. 75(1), 128–133 (1993)CrossRefGoogle Scholar
  3. Balasubramanyam V.N., Salisu M., Sapsford D.: Foreign direct investment as an engine of growth. J. Int. Trade Econ. Dev. 8(1), 27–40 (1999)CrossRefGoogle Scholar
  4. Bhagwati J.: Anatomy and consequences of exchange control regimes. Ballinger for the National Bureau of Economic Research, Cambridge, MA (1978)Google Scholar
  5. Bhagwati J.: Protectionism. MIT Press, Cambridge, MA (1988)Google Scholar
  6. Borensztein E., De Gregorio J., Lee J.W.: How does foreign direct investment affect economic growth. J.Int. Econ. 45, 115–135 (1998)CrossRefGoogle Scholar
  7. De Mello L.: Foreign direct investment led growth: evidence from time series and panel data. Oxf. Econ. Pap. 51, 133–151 (1999)CrossRefGoogle Scholar
  8. Dhawan U., Biswal B.: Re-examining export led growth hypothesis: a multivariate cointegration analysis for India. Appl. Econ. 31, 525–530 (1999)CrossRefGoogle Scholar
  9. Dickey D., Fuller W.: Distribution of the estimators for autoregressive time series with a unit root. J. Am. Stat. Assoc. 74, 427–431 (1979)CrossRefGoogle Scholar
  10. Edwards S.: Openness, trade liberalization and growth in developing countries. J. Econ. Lit. 31, 1358–1393 (1993)Google Scholar
  11. Engle R.F., Granger C.W.J.: Cointegration and error correction: representation, estimation and testing. Econometric a 55, 251–276 (1987)CrossRefGoogle Scholar
  12. Findlay R.: Growth and development in trade models. In: Jonesn, R., Kenen, P. (eds) Handbook of International Economics, vol. 1, North-Holland, Amsterdam (1984)Google Scholar
  13. Gkatak S., Milner C., Utkulu U.: Exports, export composition and growth: cointegration and causality evidence for Malaysia. Appl. Econ. 29, 213–223 (1997)CrossRefGoogle Scholar
  14. Government of Turkey: The impact of globalization on Turkish economy. Central bank of the republic of Turkey, Ankara (2002)Google Scholar
  15. Greenaway D., Sapsfor D.: What does liberalization do for exports and growth. Weltwirtschaftliches Archiv. 130(1), 152–174 (1994)CrossRefGoogle Scholar
  16. Greenaway W., Morgan D., Wright P.: Trade liberalization and growth in developing countries. J. Dev. Econ. 676, 229–244 (2002)CrossRefGoogle Scholar
  17. Harrison A.: Openness and growth: a time series, cross-country analysis for developing countries. J. Dev. Econ. 48, 419–447 (1996)CrossRefGoogle Scholar
  18. IMF: International Financial Statistics CD-ROM. International Monetary Fund, Washington, D.C. (2002)Google Scholar
  19. Ingco, M., Winter, A.: Pakistan and Uruguay round: impact and opportunities; a quantitative assessment South Asia region. Internal discussion paper, No. IDP-163, Washington, DC. The World Bank (1996)Google Scholar
  20. Jenkins R.: Trade Liberalization and export performance in Bolivia. Dev. Change 27(4), 693–716 (1996)CrossRefGoogle Scholar
  21. Johansen S.: Statistical analysis of cointegration vectors. J. Econ. Dyn. Control 12, 231–254 (1988)CrossRefGoogle Scholar
  22. Joshi V., Little I.M.D.: India’s Economic Reforms 1991–2001. Oxford University Press, Oxford (1996)CrossRefGoogle Scholar
  23. Krueger A.O.: Trade policy and economic development: how we learn. Am. Econ. Rev. 87(1), 1–22 (1997)Google Scholar
  24. Mackinnon J.G.: Critical values for cointegration tests in long-run econometric relationships. In: Engle, R.F., Granger, C.W.J. (eds) Readings in Cointegration, pp. 226–276. Oxford University Press, New York (1999)Google Scholar
  25. Michael, M., Papageorgiou, D., Choksi, A.M. (eds.): Liberalizing Foreign Trade: Lessons of Experience in the Developing World. Basil Blackwell, Oxford (1991)Google Scholar
  26. Obwona M.: Determinants of FDI and their impacts on economic growth in Uganda. Afr. Dev. Rev. 13, 46–81 (2001)CrossRefGoogle Scholar
  27. Pesaran M.H., Shin Y.: An autoregressive distributed lag modeling approach to cointegration analysis. In: Storm, S. (eds) Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge (1999)Google Scholar
  28. Pesaran M.H., Shin Y., Smith R.: Bounds testing approaches to the analysis of level relationships. J. Appl. Econ. 16, 289–326 (2001)CrossRefGoogle Scholar
  29. Rodriguez F., Rodrik D.: Trade policy and economic growth: a skeptic’s guide to the cross-national evidence. In: Bernanke, B., Rogoff, K. (eds) NBER Macroeconomic Annual 2000, MIT Press, Cambridge (2001)Google Scholar
  30. Segerstrom P., Anant T., Dinopoulos E.: A Shumpeterian model of the product life cycle. Am. Econ. Rev. 80, 1077–1091 (1990)Google Scholar
  31. Vernon R.: International investment and international trade in the product cycle. Q. J. Econ. 80, 190–207 (1996)CrossRefGoogle Scholar
  32. Woo W.T.: Comments on Wei’s paper foreign direct investment in China: source and consequences. In: Krueger, A. (eds) Financial Deregulation and Integration in East Asia, pp. 166–189. The University of Chicago Press, Chicago (1995)Google Scholar
  33. World Trade Organization: Trade policy review—Pakistan (
  34. Zhang K.H.: Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemp. Econ. Policy 19, 175–185 (2001)CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.Institute of Management Sciences (IMS)Bahauddin Zakariya UniversityMultanPakistan

Personalised recommendations