Empirical Analysis of Foreign Direct Investment and Its Impact on the Economy of Pakistan from 1993 to 2012

Abstract

The object of this study is to examine the determinants of Foreign Direct Investment (FDI) and its impact on the economy of Pakistan over the period from 1993 to 2012. Two Regression Models have been developed, one; to verify the impact of various variables on the inflow of FDI and the other; to check of effect of FDI on economic growth in Pakistan. The Annual Data of various variables have been collected through various sources like Economic Survey of Pakistan, Economic and Business Review, State Bank of Pakistan and World Bank Indicator. In the 1st Model, the Trade Openness (TO) Gross Domestic Product (GDP), Current Account Balance (CAB), and Foreign Remittances (FREM) shows the insignificant impact on FDI inflow in Pakistan. The 2nd Model comprises, the GDP was dependent variable and the independent variables were Foreign Direct Investment (FDI) Trade Openness (TO)), Labour Force (L. Force) and Domestic Investment (DI). All the independent variables show the insignificant impact on GDP with positive and negative sign of correlation. It has been suggested that Government of Pakistan should take serious measure to improve the economy of Pakistan and improve the policies for foreign investors. The E-views and SPSS software have been used to analyse the data.