International trade investment and economic growth: Evidence From Pakistan

Khalil Ahmad

Abstract

This paper has explored causality relationship between growth rate of GDP (as dependent variable) and growth rates of exports, imports, openness, domestic investment and labour (as explanatory variables) in alternative equations. Traditionally, much of the literature on economic growth has looked at the relationship between economic growth and growth rate of exports among other determinants of growth. Very few studies have tried to estimate the relationship between economic growth and growth rate of imports and/or of openness (i.e. exports plus imports). We developed a model relating the growth rate of GDP to the growth rates of openness (exports plus imports), domestic investment and population. Then we used annual time series data on GDP growth rate, and growth rate of imports, exports, openness, domestic investment and population. The data were first, tested for unit root using Phillips- Perron (1988) test and then the empirical relationship between GDP growth rate and growth rates of other variables was estimated using OLS with AR(1). The main finding of the study is that openness and imports do not matter for economic growth in Pakistan, whereas growth rate of exports, domestic investment and population do affect positively the growth rate of GDP.