Is Stock Market Sensitive to Foreign Capital Inflows and Economic Growth? Evidence from Pakistan

Syed Raza, Syed Tehseen Jawaid and Sahar Afshan

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the impact of foreign capital inflows and economic growth on stock market capitalization in Pakistan by using the annual time series data from the period of 1976 to 2011. The ARDL bound testing cointegration approach confirms the valid long run relationship between considered variables. Results indicate that foreign direct investment, workers’ remittances and economic growth have significant positive relationship with the stock market capitalization in long run as well as in short run. Results of dynamic ordinary least square (DOLS) and fully modified ordinary least square (FMOLS) suggest that the initial results of long run coefficients are robust. Results of variance decomposition test show the bidirectional causal relationship of foreign direct investment and economic growth with stock market capitalization. However, unidirectional causal relationship is found in between workers’ remittances and stock market capitalization. It is suggested that in Pakistan, investor can make their investment decisions through keep an eye on the direction of the considered foreign capital inflows and economic growth.

Keywords: Remittances; Foreign Direct Investment; Economic Growth; Market Capitalization (search for similar items in EconPapers)
JEL-codes: F21 F24 F43 G20 (search for similar items in EconPapers)
Date: 2013-04-05
New Economics Papers: this item is included in nep-fdg and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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