Impact of Foreign Direct Investment on Economic Growth of Pakistan

Abstract

The main purpose of this paper is to find and analyze the impact of FDI and trade openness on economic growth of Pakistan. For this study we used time series data from 2008-2013. Methods that are used for this purpose are co-integration analysis, regression analysis, correlation and Durbin Watson test which check the long run relation and association among variables. By using these test we examined that FDI, trade openness and domestic capital are positively effecting the economic growth as compared to other variable which is showing negative trend. Important essence of this paper is the requirement of policy reformulation and implication by the government of Pakistan that can be drawn from this paper finding. Government should take solid steps in order to increase FDI, exports and domestic investment and protect industries that would benefit the country’s economic condition. Government should take measures in order to stabilize the exchange rate that may attract more investors for sake of higher profits. Higher FDI inflows in turns fetch more educated labour and replace the obsolete technology.