China Pakistan economic corridor (CPEC) : its impact on financial market

Abstract

China Pakistan Economic Corridor (CPEC), China has made commitments to invest approximately $62 billion in developmental-deals, which is equivalent to almost 15 per cent of Pakistan's annual GDP. The purpose of this study is to examine possible associations between China Pakistan Economic Corridor (CPEC), FDI, Cement sector and Oil & Gas sector with financial market in Pakistan. The paper results are based on unit root test (Augmented Dickey Fuller test), Correlation and Regression model tests applied to monthly data from 1999 to 2015. The study reveals that Cement sector and Oil & Gas sector have an impact on financial market. CPEC directly doesn’t show that much impact until we use an interactive term to explain the relation, that shows a strong impact on financial market. FDI is observed as a major factor of financial market, both directly and indirectly, but in this study very little impact is explained. The results deliver significant information in terms of CPEC suggestions and their application is far from being limited. Some lessons in terms of sectoral impact can be drawn by financial market that are now more volatile with economic development. This study is the first of its kind to analyze the role of both Cement sector and Oil & Gas sector in the Pakistan financial market during the 1999-2015 period, over which other aspect were also taken as important to explain, in particular in the context of financial market structure. In order to gain from inflows of FDI, government should persist the progressive decrease of barriers to FDI.