Abstract
The objective of this study is to investigate the impact of foreign direct investment (FDI) and workers’ remittances on private savings of Pakistan. This study employs ARDL bound testing co-integration approach, rolling window analysis, Granger causality test, Toda and Yamamoto Modified Wald causality test and variance decomposition test. Results indicate the significant positive impact of FDI and workers’ remittances on private savings in the long and short run. Causality analyses confirm the bidirectional causal relationship of FDI and workers’ remittances with private savings. It is recommended that policy makers should form friendly policies to attract more FDI and workers’ remittances in the country which leads to increase private savings in Pakistan. This leads to increase more fund for financial intermediaries to increase domestic investment opportunities in the country. This paper makes a unique contribution to the literature with reference to Pakistan, being a pioneering attempt to investigate the impact of FDI and workers’ remittances on private savings of Pakistan by using the long annual time series data and applying more rigorous econometric techniques.
Highlights
The term savings describe the unconsumed disposable income which is kept with the intention of stabilizing consumption in some future time
This paper makes a unique contribution to the literature with reference to Pakistan, being a pioneering attempt to investigate the impact of foreign direct investment (FDI) and workers’ remittances on private savings of Pakistan by using the long annual time series data for 39 years from 1973 to 2011 and by applying more rigorous econometric techniques
The shocks in workers’ remittances explain 12.49%, 16.76% and 23.22% by innovation of private savings in the period 1, 5 and 10 respectively. These findings suggest the bidirectional causal relationship of FDI and workers’ remittances with private savings
Summary
The term savings describe the unconsumed disposable income which is kept with the intention of stabilizing consumption in some future time. Saving is the key factor which increases future consumption. When people start to rely on debts either than they saved cash much more pressure is found on the financial institutions which reduce the strength of any nation. We can see a high rate of inflation and imposed taxes throughout the world which is a big threat for the amount to save by an individual and which further reduces the investment to be made in the upcoming future. People do saving in the good times so that they have enough funds in their account for the rainy days which are more likely to come in a very frequent pace in develop-
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