Determining the Impact of Foreign Direct Investment on Exports of Pakistan using ARDL Bounds Testing Approach

Abstract

This study employed autoregressive distributed lag model (ARDL) approach to investigate how exports and foreign direct investment (FDI) are related in Pakistan for the period spanning from 1974 to 2019. For cointegration analysis, we used bounds test. The findings of the cointegration test indicated that the variables have a long-term cointegration relationship. According to estimated results, the relationship between the two variables is negligible over the long-run, whereas FDI has a positive influence on exports in the short-run. Moreover, the estimated error correction term is significant with the expected sign. It is concluded that FDI inflows are advantageous for improving manufacturing processes, which would eventually lead to high-quality exports and economic progress of Pakistan. Policymakers are required to make efforts to removing all hurdles in Pakistan's economic progress.