Impact of GDP Growth Rate and Inflation on the Inflow of Foreign Direct Investment (FDI) in Pakistan

Abstract

Countries with high economic growth rates afford enviable quality of life to its citizens. On the other hand, countries that do not make economic progress are found stuck in poverty, crime and social backwardness. Foreign Direct Investment (FDI) occupies a significant importance in the socio-economic development of any economy. High inflow of Foreign Direct Investment (FDI) leads to the reduction in poverty, unemployment and to high economic growth in developing countries like Pakistan. However, domestic economic progress and stability leave significant impact (i.e. both positive and negative) on the inflow of FDI in home country. In this connection, the major objective of this research paper is to find out the extent to which economic scenario in Pakistan has become successful in attracting FDI. Therefore, this research paper has been focused on finding out the impact of GDP growth rate and rate of inflation on the inflow of Foreign Direct Investment (FDI) in Pakistan. For estimation, ABDL approach was applied on time series secondary data (i.e. from 1970 to 2015). The empirical evidence confirms that there is significant impact of selected independent variables (i.e. Gross Domestic Product growth rate and Rate of Inflation) on the inflow of FDI in Pakistan during mentioned time period. On the basis of study results it is suggested that government of Pakistan needs to make its monetary policy more effective to ensure stable and increasing economic growth in the country.