Trade Openness, Size of Economy and the Saving–Investment Relationship: A Dynamic Analysis for Pakistan. (December 2015)

• Record Type: Journal Article
• Authors: Umer, Faiza; Alam, Shaista
• Is Part Of: South Asian journal of macroeconomics and public finance. Volume 4:Number 2(2015:Dec.)
• Page Start: 233
• Page End: 257
• Publication Date: 2015-12
• Subjects: Trade openness -- economic growth -- savings -- investments -- Vector Error Correction Model -- impulse response function -- variance decomposition; Macroeconomics -- Periodicals; Finance, Public -- Periodicals; Finance, Public -- South Asia -- Periodicals; Economics -- Periodicals; Public Sector -- economics -- Periodicals; 339.0954
• DOI: 10.1177/2277978715574618
• Languages: English
• ISSNs: 2277-9787

Abstract

The main objective of this study is to examine the saving–investment relationship with the size of economy and trade openness in Pakistan during the period 1960–2011. For this purpose, the study employed vector auto-regression (VAR) to check simultaneity among trade openness, economic growth and saving–investment. Findings of the study confirm a significant positive relationship among trade openness, economic growth, saving and investment of Pakistan in the long run, but these do not establish a significant short-run relationship among trade openness, economic growth, savings and investment. In light of empirical results, the present study suggests that external sector development should be given due importance. For this purpose, the availability of credit should be enhanced properly. This will not only increase the saving rate in the country but also enhance domestic investment. JEL Classification: A11, B12, C13, D14