Inward Remittances, Foreign Direct Investment and Their Impact on Stock Prices: A Time Series Evidence from Karachi, Pakistan

Abstract

The purpose of this study is to scrutinize the impact of Personal Remittances and Foreign Direct Investment on KSE100 Index in Pakistan by using annual time series data from 1991-2015. Remittances (REM) and Foreign Direct Investments (FDI) used as an independent variables and KSE100 Index has been used as a dependent variable. Unit Root Test of ADF and PP applied to test the stationarity of variables. Furthermore, Co-Integration test, Ordinary Least Square method and Granger Causality Analysis have been applied to identify the relationship and impact. The results of unit root test (ADF and PP) shows that data is non-stationary at level and stationary at first difference. The results of OLS and Causality analysis shows that REM has a positive and significant impact on KSE100 whereas, FDI puts an insignificant impact on dependent its variable. It is therefore, suggested for the growth of Pakistan, the Government and policy maker should work on its exchange rate that helps to increase the FDIs in Pakistan and ultimately it can cause to accelerate economic growth of a country.

Keywords: FDI, KESE100 Index, Remittances, Stock Price