Economic Analysis of Foreign Direct Investment and Its Impact on Trade and Growth in Pakistan

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SUBMITTED TO THE COURSE FACILITATOR:
“SIR FARHAN MEHBOOB”
AS PER THE PARTIAL REQUIRMENT OF THE COURSE:
“ECONOMIC ANALYSIS FOR MANAGEMENT”
SUBMISSION OF RESEARCH PAPER ON TOPIC:
“ECONOMIC ANALYSIS OF FOREIGN DIRECT INVESTMENT AND ITS IMPACT ON TRADE AND GROWTH IN PAKISTAN” SUBMITTED BY:
“SHIRAZ KHAN”
(6001)

TOPIC
Economic Analysis of Foreign Direct Investment and its Impact on Trade and Growth in Pakistan AUTHOR
Shiraz Khan
Business Graduate,
Iqra University,
Karachi, Pakistan.

ABSTRACT
Foreign direct investment (FDI) in context of Pakistan is one of the major contributors that help Pakistan to minimize the gap of financial resources and funds. FDI has played a significant and vital role in the domestic markets of Pakistan and has contributed in the increase in the exports, capital formation and the human skill development of Pakistan. Net FDI balances in Pakistan in 1976 were $8.22 million which grew to $1.24 billion by the end of 2011. The present research study is an empirical analysis of the impact of FDI on Pakistan’s economy with the help of time series data. The study applied the linear regression analysis and produced a model to determine and predict the impact and relationship of FDI on the overall Gross Domestic Product (GDP) of Pakistan. The results of this study showed that there is a significant relationship between the GDP and FDI of Pakistan and FDI contributes positively towards the GDP. The results of the GDP model suggested that GDP will increase 27.636 times of FDI with an increase of each unit of the FDI. Key words:

Foreign Direct Investment (FDI), Gross Domestic Product (GDP), Pakistan.

INTRODUCTION
Foreign Direct Investment refers to the investment made by a company or an entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies. [18] Foreign Direct Investment from the past two decades has changed the traditional economic relations in the world economy. FDI stock of the world reached more than $ 4 trillion by year 1998 about 800% more than what it was in 1980 [17].

Integration and liberalization of the world economy has accelerated the fierce competition of many developing countries for such policies to attract as much of the FDI inflows as possible. The selective policies not only improve the fundamentals of the economy but they aim at attracting more foreign investments in the country. This study is to understand how significant is the contribution of the Foreign Direct Investment and how it will contribute towards the economy of Pakistan. And it will also emphasize on the fact that how important is the removal of the barriers restricting the FDI inflows in the economy.

LITERATURE REVIEW
Klasra (2011) Researchers have drawn diverse results on the basis of economic growth determinants, and there was no conclusive consensus. Results of the particular hypothesis reveal the interdependency of trade openness & growth as liberalization process is contributing towards the short-term benefits of Pakistan which is complementing competition in the locale and contributing and enhancing the economy. Zaman (2006) Issue of the FDI is very broad and sensitive as it is far reaching in the economy of Pakistan. This study precisely focuses on the FDI effects on the concerned economy, as previous researches were more of a big picture. In particular areas this research is particularly contrasting from the previous work, where inflation has a positive relation with FDI and...
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