EFFECTS OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM PAKISTAN

Abstract

Purpose: FDI is one of the very eminent factors of world economy. It especially plays an effective role in developing countries’ economic growth, for that reasons developing economies struggle a lot to invite FDI. The previous researches provide support that FDI has a positive impact on growth of an economy. In this study the role of FDI along with other explanatory variables like gross capital formation, labor force participation and public spending against the economic growth. Methodology/Sampling: The variables supplemented into the model are based on well-established and long-standing economic theory, tested under the standard OLS regression. The data were referred from United Nation Conference for Trade and Development (UNCTAD) and State Bank of Pakistan FDI database. Time period for this is from 1980 to 2012. All in all32years samples were taken for study in this research. Findings: The main conclusions drawn are that in the case of Pakistan, FDI and Labor force participation is found to be positively associated with economic growth. Practical Implications: This study is going to help policymakers to take active measures and formulate strategies that will enhance economic growth in the country.