Does agricultural sector foreign direct investment promote economic growth of Pakistan? Evidence from cointegration and causality analysis

Purpose The purpose of this paper is to examine the linkage between agricultural sector foreign direct investment (FDI) and economic growth in Pakistan over the period from 1991 to 2013. Design/methodology/approach In this study, the stationary analysis is performed by using Phillips-Perron and Dickey-Fuller generalized least squares unit root tests and Johansen cointegration technique to determine the long-run linkage among the studied variables. The robustness of long-run linkage is checked by employing autoregressive distributed lag (ARDL) approach, dynamic ordinary least squares (DOLS), fully modified ordinary least square method (FMOLS) and the canonical cointegration regression (CCR). The causal linkage between the selected variables is investigated by the VECM Granger causality test. Findings The results of the Johansen cointegration test confirmed a cointegrating association between the variables. In addition, the results of the ARDL, DOLS, FMOLS and CCR showed that agricultural sector FDI has a strong positive significant effect on economic growth in long run. Moreover, the findings of the present empirical study revealed that there exists bidirectional Granger causality between the agricultural sector FDI and economic growth in both short run and long run. Originality/value The present empirical study filled the literature gap of applying the Granger causality based on error-correction model to examine this relevant issue for Pakistan.