Impact of Foreign Direct Investment on Economic Growth of Pakistan

Abstract

This study investigates the short and long run impact of Foreign Direct Investment (FDI) on Economic Growth of Pakistan. For this purpose, time series data from 1976-2015 has been collected from State Bank of Pakistan, World Bank and Economic Survey of Pakistan. Dependent variable used as Economic Growth (Gross Domestic Product Growth Rate (GDPGR) and independent variables as FDI, Gross Domestic Educational Expenditure (GDEX), Domestic Capital (KD), Openness to Trade (OPT), External Debt (EXD) and Labour Participation Rate (LPR). For stationarity of data Augmented Dickery Fuller (ADF) test was used and Auto Regressive Distributed Lag (ARDL) model was used to check the long-term co-integration among variables. The results of the study indicate that the FDI has significant positive impact on Economic Growth of Pakistan in short run whereas; it has insignificant negative impact on long rum at 5% significant level. Furthermore, the statistical results show that economic growth has significant impact on GDEX, OPT, EXD, KD and Insignificant impact on FDI and LPR. The significant epitome of this study is the requirement of the policy restructuring and implications by the Government of Pakistan which can be drawn from the findings of this study. Government of Pakistan should take necessary measures based on the recommendations of this study to enhance FDI and attract more investments both national and international.