Trade, Foreign Capital, and Productive Capacity Nexus: The Moderating Role of Institutions

Authors

  • Muhammad Amin Hasan Karachi Institute of Economics & Technology (KIET), Pakistan.
  • Sheikh Nabeel Badar APL Logistics Pakistan (Pvt) Limited, Karachi, Pakistan.
  • Aman Abbas Ghouri World Wide Fund for Nature (WWF), Karachi, Pakistan.
  • Muhammad Saad National University of Computer and Emerging Sciences, Karachi, Pakistan.

DOI:

https://doi.org/10.52131/joe.2023.0504.0183

Keywords:

Trade Openness, Productive Capacity, Foreign Direct Investment, International Remittances, Institutional Quality

Abstract

International trade and foreign capital inflows are considered significant determinants of economic growth. However, despite being the largest recipients of these inflows, South Asian economies fail to achieve sustainable economic development due to rapid changes in macroeconomic dynamics and political instability. The purpose of the study is to examine the impact of trade openness (TRD), foreign direct investment (FDI), and international remittances (REM) on the productive capacity (PC) of South Asian economies, with a focus on the moderating effects of the institutional quality (INQ) on the aforementioned relations. The study uses the sample of four South Asian countries namely: Bangladesh, India, Pakistan, and Sri Lanka for the period from 2000 to 2022. The empirical results show that TRD, REM, and INQ exhibit positive and statistically significant effects on PC. The results highlight the significance of international trade, foreign capital inflows, and INQ in determining the PC of South Asian economies. Notably, the findings indicate that FDI has no impact on the PC of the sample economies. Surprisingly, INQ negatively moderates the relationship between REM and PC. Furthermore, INQ positively moderates the impact of TRD on PC. However, INQ does not moderate the effect of FDI on PC in the sample countries. The conclusion section discusses the policy and practical implications of the study, as well as its limitations.

Author Biographies

Muhammad Amin Hasan, Karachi Institute of Economics & Technology (KIET), Pakistan.

Lecturer, College of Management Sciences (CoMS)

Sheikh Nabeel Badar, APL Logistics Pakistan (Pvt) Limited, Karachi, Pakistan.

Senior Supervisor, Country Finance

Aman Abbas Ghouri, World Wide Fund for Nature (WWF), Karachi, Pakistan.

Senior Finance Officer

Muhammad Saad, National University of Computer and Emerging Sciences, Karachi, Pakistan.

Assistant Professor and Head of Department at Management Sciences, FAST School of Management 

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Published

2023-12-31

How to Cite

Hasan, M. A., Badar, S. N., Ghouri, A. A., & Saad, M. (2023). Trade, Foreign Capital, and Productive Capacity Nexus: The Moderating Role of Institutions. IRASD Journal of Economics, 5(4), 1113 – 1129. https://doi.org/10.52131/joe.2023.0504.0183