Impact of Government Investment and Chinese Investment on Economic Growth of Pakistan.

Asad Haseeb Khan, Wazir Arif Hussain

2023

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DOI 10.59735/arabjhs.vi22.186
Data confidence 70 medium
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Abstract

The research aims to evaluate the impact of government development expenditure and Chinese foreign direct investment on Pakistan's economic growth from 1980 to 2020. The data sample used in the study was sourced from the World Bank database and the Pakistan Board of Investment Publications. The dependent variable was GDP growth, while the independent variables were Chinese foreign direct investment, CFDI government development expenditure, and Gross Domestic Product (GDE). The study used various tests, including Unit root test, Autoregressive Distributed Lag, Error Correction Model, White test, lag selection criterion, Akaike Information Criterion (AIC), and Granger Causality Test. The study found that Chinese investment and GDE have a positive impact on Pakistan's economic growth in the short run, while negatively affecting it in the long run. The positive relationship between CFDI government development expenditure and GDP growth is present in both the short and long run, as government fiscal policies in favor of Chinese investment aim to increase investment inflow. GDE stimulates CFDI, resulting in a positive impact on GDP growth. The study was divided into two sub-period groups to analyze the relationship before and after the sharp decline of CFDI in pre-2007 and post-2007 sub-periods. In pre-2007, CFDI and GDE helped in economic growth with a negative relationship between CFDI and GDE. After the dramatic decline in 2007, the relationship changed, with GDE having a positive effect while CFDI negatively affected economic growth with a negative relationship in CFDI*GDE. These findings are valuable for policymakers and the government to formulate effective economic policies for Pakistan's economic development and are insightful for foreign investors to understand the trend.