Relationship between FDI and GDP: A Case Study of South Asian Countries

Abstract

The basic objective of this study is to compute the long run relationship between FDI and GDP for south ASIAN countries (Pakistan. Nepal, Bhutan, India and Maldives). For this purpose, the FDI and GDP data of south Asian countries is collected for the period 1991-2012.the data was analyzed by using technique of unit root test, Johnson co-integration and granger causality test. The unit root test (ADF) augmented test confirmed that data is not stationary at level but it is stationary at first difference. The Result of co integration test indicates that there exist co-integration equations at the 0.05 level. The granger test shows that fdi and GDP in case of Nepal cause a unidirectional causality. The study will help and give guiding principle to policymaker and investor make scheme to prop up economic growth in Pakistan which is suffering from a high ratio of unemployment.

Keywords: Foreign Direct Investment, Gross Domestic Product, Unit Root Test, Co integration Test, Granger Causality Test