The Impact of Foreign Direct Investment, Real Effective Exchange Rate and Total Labor Force on Export of Pakistan (1990-2016)

Abstract

This paper identifies the impact of foreign direct investment (FDI), the real effective exchange rate and the total labor force on the exports of Pakistan. A Double lag equation model for this investigation was developed in which FDI, exchange rate and labor force play a central role. The underlying conceptual framework of this paper reveals the positive impact of FDI and Labor force on exports of Pakistan while exchange rate shows negative impact. The distinguishing feature of this analysis is to encourage FDI and Effective Labor force which contribute to export development strategies of Pakistan.  To estimate the long run and short run connection among the variables, yearly data for the period ranging from 1990-2016 have been analyzed by using Johanson Co-integration and Vector Error Correction model have been applied to determine the response of variables on each other. The  result of this study shows that in the long run, FDI and Effective labor force play a vital role in the growth of Pakistan’s exports while in the short run, the influence of exchange rate are very effective for the promotion of exports.  It is recommended based on the study that Government should encourage FDI & TLF when developing the policy of trade.