The Substitution of Foreign Savings for Domestic Savings: An Empirical Analysis of Pakistan

Abstract

The empirical study estimates the factors affecting substittion of Foreign Direct Investment for domestic saving in Pakistan. The study  has used time series data over the period form 1990 to 2014. The study has applied Autoregressive distributed lag approach to test the cointegration among variables used in analysis. The fidings are supported by the unit root test and standard diagnostic tests. Long run and short run results are estimated by following error correction mechanism. Findings reveal that there is positive and significant relationship between domestic saving and foreign saving. The study reveal that to increase the domestic investment can be a sourcefull substitution for foreign saving. The long term sustainable economic growth can be achieved by developing a policy plan to encurrage the behavior of domestic private and public saving in Pakistan.