Applied Economics Research Centre,
University of Karachi, Karachi
Mohammed Nishat, PhD
Professor and Chairman, Dept. of Finance and Economics
Institute of Business Administration (IBA), Karachi
The paper empirically identifies the determinants of growth in foreign direct investment
(FDI) in Pakistan over the period 1961 to 2003. Our main interest is to study how
different variables or indicators reflecting trade, fiscal and financial sector liberalization
attract FDI in Pakistan. The study uses the Cointegration and error-correction techniques
to identify the variables in explaining the FDI in Pakistan. The study considers the tariff
rate, exchange rate, tax rate, credit to private sector and index of general share price
variables if they explain the inflow of foreign direct investment. Also included wages and
per capita GDP to test for relative demand for labor and market size hypotheses. All
variables indicated correct signs and are statistically significant except for wage rate and
share price index. The study clearly emphasizes the role of these policy variables in
attracting FDI and determining its growth in both short and long run in Pakistan. The
study also indicates a positive and significant impact of reforms on FDI in Pakistan.
FDI, International factor movement, International Business
*Submitted for the 20th Annual PSDE Conference to be held on 10-12 January 2005,
THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN PAKISTAN1
The significance of foreign direct investment (FDI) flows is well documented in literature
for both the developing and developed countries. Over the last decade foreign direct
investment have grown at least twice as rapidly as trade (Meyer, 2003). As there is
shortage of... [continues]
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