Does Chinese Foreign Direct Investment (FDI) Stimulate Economic Growth in Pakistan? An Application of the Autoregressive Distributed Lag (ARDL Bounds) Testing Approach

Abstract

The objective of this paper is to ascertain the impact of Chinese FDI on economic growth in Pakistan. This study documents the exploration of the determinants of economic growth in Pakistan by emphasizing the significant role played by Chinese FDI and investments in renewable energy in particular. This paper employs time series data analysis to examine the relationship between GDP and Chinese FDI, inflation, trade openness, exchange rates, interest rates, remittances, and renewable energy consumption from 1990 to 2019. The study involved performing the ARDL bounds test, and it was determined that the dependent and independent variables are linked in the long term. Furthermore, the error correction model is negative and noteworthy, which checks the long-run relationship between variables. According to the findings of the autoregressive distributed lag (ARDL) model, Chinese FDI has a substantial favorable effect on Pakistan’s economic growth. Furthermore, renewable energy usage has a long-term favorable and significant association with Pakistan’s economic growth. This study established that FDI, and particularly renewable energy, will stimulate the economic growth of Pakistan. Our research has substantial policy implications, especially when it comes to the relationship between FDI and renewable energy.