Impact of Foreign Direct Investment and its Determinants  on Pakistan’s Economic Growth

Aliza Khan; Saghir Pervaiz Ghauri

doi:10.58921/jobams.7.2.182

Aliza Khan Jinnah University for Women
Saghir Pervaiz Ghauri Professor, Economics Department, Jinnah University for Women

DOI: https://doi.org/10.58921/jobams.7.2.182

Keywords: Auto Regressive Distributed Lag (ARDL), Exchange Rate (EXH), External Debt, Foreign Direct Investment (FDI), Human Development Index (HDI), Inflation, Log of growth domestic product (economic growth), Openness to Trade

Abstract

This research discovers the FDI impact on Pakistan’s economic growth, focusing on a set of macroeconomic indicators: Gross Domestic Product Growth Rate (GDPGR), Inflation (INF), Trade Openness (TDO), External Debt (EXD), Human Development Index (HDI), and Exchange Rate (EXH). Utilizing annual figures from 1990 to 2024, the research applies the Auto Regressive Distributed Lag (ARDL) model to inspect both short-run and long-run relationships among variables. As per findings there is a stable long-run significant positive effects of HDI, inflation, and external debt on economic growth, whereas trade openness has a significant negative impact. In comparison, FDI and exchange rate have statistically insignificant long-run effects on economic growth. As per the result of short-run analysis inflation, external debt, trade openness, and exchange rate display significant delayed effects on economic growth. Furthermore, the ECT confirms convergence with long-run stability and short-run instability. Results shows the significance of maintaining a positive investment situation and executing strategies that can enhance the economy’s absorptive capacity to capitalize on the benefits of FDI. This study provides valuable insights for policymakers seeking to utilize FDI as a for sustainable economic growth in Pakistan.