The Macroeconomic Analysis of Foreign Capital Inflows in Pakistan: A Re-examination Using Vector Error-Correction Approach

The topic of foreign capital inflows (FCI) to Pakistan has received substantial attention in the empirical literature, but existing work mostly relied on conventional econometric tools — OLS, 2SLS, FIML, and 3SLS — which do not account for the non-stationarity of macroeconomic variables. This book provides a systematic re-examination of the macroeconomic impacts of foreign capital inflows in Pakistan using the Vector Error-Correction (VEC) approach, which is capable of modelling long-run co-integrating relationships alongside short-run adjustment dynamics. The study covers FDI, external loans and credit, technical assistance, and project and non-project aid, providing a comprehensive analytical treatment of FCI-growth linkages for Pakistan over the period 1975–2004.