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Title: The macroeconomic impact of foreign capital inflows; a case study of Pakistan
Authors: Saeed, Tariq
Issue Date: 1995
Abstract: Despite their shortcomings econometric models today are widely used both by government and industry because of the fact that they are both involved in some kind of planning and target-testing. In this context, this dissertation is an attempt to construct an open economy model for Pakistan economy.. to investigate impact of foreign capital. Econometric models related to the Pakistan economy have been developed by many individual economists and institutes, e.g. PIDE model. Although these models provide a full useful background for the understanding of general or special problems of the Pakistan economy, none of them tackles the same problems we are interested in, that is impact offoreign capital inflows. However, developing a macroeconometric mode! for developing economies, like Pakistan, is not a straight forward business. Keeping in view these difficulties, we have constructed an open economy model where aggregate demand, prices, financial assets, and capital assets, balance of payments, and foreign debt have all been combined. The model has a full dynamic structure which is quite useful to see the path of regaining an equilibrium state in response to changes in various factors. Model of this kind is significant improvement over the conventional 'two-gap' model which rather depends upon too many stringent assumptions. Since the postulated model has a dynamic structure we consider simulation a powerful analytical tool for evaluating its properties which not only gives long run impact of an exogenous change but also shows the path through which the final state is arrived and that is what we intend to do. Impacts of internal and external changes have been evaluated. Simulation results suggests that exports and imports do respond to an appropriate policy instrument. Adjustment is partially found to be strong with government consumption cut. The exchange rate depreciation, however, has not been found to be an adequate policy measure to improve balance of payments deficit. Any nominal exchange rate depreciation is ultimately transformed into an equal domestic price rise and as a result the initial gains in terms of improvement in balance of payments are completely off set by the subsequent price rise. It is only the real exchange rate depreciation which could bring a permanent "expenditure switching".
Description: A Master’s Thesis submitted in partial fulfilment of the requirements for the award of Master of Philosophy of Loughborough University.
Version: Closed access
URI: https://dspace.lboro.ac.uk/2134/10241
Appears in Collections:Closed Access MPhil Theses (Economics)

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