Do Foreign Inflows Benefit Pakistani Poor?

Abstract

Foreign Inflow plays an important role in country’s development. The importance of foreign inflows is not limited to developing countries; developed and emerging economies also attract foreign inflows to supplement their resources to sustain growth. The importance of foreign inflow in Pakistan is very well acknowledged and documented, however the affect of these inflows on poor people of Pakistan remains unanswered. This paper is an attempt to fill this gap by studying the impact of foreign inflows on poverty reduction in Pakistan through the channel of health, education and other indicators related to human development. Our foreign inflow variable consists of Foreign Direct Investment, Remittances and Foreign Assistance. Using ARDL approach to co-integration on time series data for the period 1972 to 2008, we found that foreign inflows as a whole have increased poverty levels in Pakistan. At disaggregated levels, we found that foreign assistance is the major component of inflows which is responsible for the positive relationship between inflows and poverty. We also found positive relationship between poverty and infant mortality and foreign inflows and female enrolment. The relationship suggests that increase in foreign inflows would not only increase poverty but also would increase infant mortality through indirect channel. The impact of inflow on female enrolment was however found to be positive. JEL classification: E00, F20, F21, F34, F35, I30 Keywords: Poverty, Economic Growth, Pakistan, Foreign Capital, Foreign Debt, Aid, Remittances, Foreign Direct Investment

Direct impact of inflow of foreign direct investment on poverty reduction in Pakistan: a bonds testing approach

“…Similarly, few studies conclude that there is a negative impact of FDI on poverty reduction (e.g. Ali et al, 2010;Huang et al, 2010). The findings of these studies present in Table 2 that inflows of FDI lead to a rise in the level of poverty, opposite to theoretical predictions (Table 2).…”

“…The Warr (2000), Hsiao and Hsiao (2006), Dollar et al (2013) and Feeny, Iamsiraroj, and McGillivray (2014) explored the nexus FDI and poverty through economic growth channel, whereas, limited research has been done on the direct relationship between FDI and poverty reduction. Moreover, several past studies revealed a strong and positive impact of FDI on poverty reduction, but few studies such as Huang et al (2010) and Ali et al (2010) found that FDI influences inversely on poverty reduction. These studies concluded that FDI increasing poverty in these countries and these results are contractions to theoretical hypotheses.…”

“…The literature of Jalilian and Weiss (2002), Zaman, Khan, and Ahmad (2012a), Gohou and Soumare (2012), Fowowe and Shuaibu (2014) and Shamim, Azeem, and Naqvi (2014) found a positive impact of FDI on poverty reduction. The Huang, Teng, and Tsai (2010); Ali, Nishat, and Anwar (2010) explored the negative influence of FDI on poverty reduction. Finally, the insignificant results regarding FDI and poverty reduction found by these studies such as Tsai and Huang (2007) and Akinmulegun (2012).…”

Foreign Direct Investment And Poverty Reduction

“…However, apart from studies that have found a positive impact of FDI on poverty reduction, there are also a few studies that have found a negative impact of FDI on poverty reduction. These studies include Huang et al (2010) and Ali and Nishat (2010). Huang et al (2010) examined the impact of FDI on poverty in 12 countries from East and Latin America between 1970 and 2005.…”

“…Using unbalanced panel data, they found inward FDI to have a negative impact on poverty reduction. Ali and Nishat (2010) used time series data on Pakistan from 1973 to 2008 to investigate the relationship between FDI and poverty. Employing Autoregressive Distributed Lag (ARDL) and using the poverty headcount as a proxy of poverty, they found FDI inflows to have a negative impact on poverty reduction in Pakistan in both the short and long run.…”