(2010-2016) the foreign direct investment. Foreign direct investment






Submitted to: Sir Hidayat Ali Khan


Submitted by: Muhammad Nouman

                    Misbah Shahzad








Foreign Direct Investment and economic growth in PAKISTAN




The aim of this study is to
investigate the impact of foreign direct invest in economic growth of PAKITSAN.
It also covers the benefits and consequences arise from the foreign direct
investment. Foreign direct investment refers to the investment in a business of
a one country by an entity based in another country. However it is different
from the portfolio and domestic investment .A foreign direct investment is a
major source of external funding and plays an important role in the economic
development of the country. Direct foreign investment has positive impact on
country gross domestic product (GDP), capital formation, employment
opportunities, better business relations with countries and many advantages
relating to import and export. However it leads some negative impact such as
high completion to home market products or monopoly etc.This research article
is typically related to the impact of DFI on economic growth and GDP in PAKISTAN for
the period 2010-2016.




foreign direct investment plays an important role in order to boost the economy
of developing countries such a PAKISTAN.
This is considered an important factor in the development of the country’s
economic growth. Foreign direct investment is an inflow of foreign countries
which not only fulfill the requirements of capital but also leads to different
advantages such reduction in cost, increasing foreign reserves, favorable
balance of payment, increasing domestic investment etc.Like other developing
countries Pakistan is also considered as a favorable country for DFI because of
huge population, favorable economic condition, Government polices, environment
and low running cost. In last few decades many countries are attracted toward
the Pakistan
for investment. The biggest example of investment in from foreign country is
CPEC and other related projects. This study typically analyzes the effect of
foreign direct investment on GDP and economic growth. Foreign direct investment is
also serving as a means for movement or transfer of information and technology.


            The basic motives of direct foreign
investment from investor point are effective market, resources and profits. Pakistan as a
developing country can fulfill these motives and seems a good option for direct
foreign investment. Now question is that, how direct foreign investment affects
the GDP of country? Gross domestic product is monetary measures of all final
goods and services produced or rendered during the period of time. So when
there is a foreign direct investment in a country it will leads to higher
production and effective utilization of resources which ultimately leads to
high per capita income which means high GDP. According to wikipedia Pakistan
is considered 5th populated country with the population of 209,970,000 people and has GDP 283.7 billion
USD (2016).


            There are some factors in Pakistan
that hinder the opportunities of foreign investment such as Government
policies, terrorism and political uncertainty. In order to make your country a
good option for foreign investment Government should intervene to remove such
difficulties and problems. There may be a chance that direct foreign investment
may offer country domestic product a high competition and hold monopoly or may
spoil other domestic investors and business men.



Literature review


Foreign Direct
Investment (FDI) is determined by three sets of advantages which direct
investment should have over the other institutional mechanisms available for a
firm in satisfying the needs of its customers at home and abroad. The first of
the advantages is the ownership specific one which includes the advantage that
the firm has over its rivals in terms of its brand name, patent or knowledge of
technology and marketing. This allows firms to compete with the other firms in
the markets it serves regardless of the disadvantages of being foreign. The
second is the internationalization advantage that is why a ‘bundled’ FDI
approach is preferred to ‘unbundled’ product licensing, capital lending or
technical assistance (Wheeler and Mody, 1992).


Falki (2009)
conducted a study on the impact that FDI had on the economic development of Pakistan. The
study included data on FDI gathered from the Handbook of Pakistan economy of
2005. Data ranged from 1980 and 2006 and held variables such as domestic
variables, labor force and foreign invested capital. Falki used the endogenous
theory of growth and a regression analysis, Falki was able to conclude that FDI
had a statistically negative effect on the gross domestic product and foreign
direct investment in the country. Similarly, Agarwal (2000) in his study found
that the increase of FDI in South Asian countries was in association with the
exponential investment by local investors, providing evidence to belief that
the relationship between FDI and GDP and the influence of FDI on GDP was
negative till the year 1980. In the following years, early 80s, the link was
mildly positive and strengthened over the years in the late eighties into the


In contrast, Adam
& Tweneboah (2009), economists from Ghana,
conducted an independent study on the FDI and stock market development in the
country concludes that FDI in Ghana
had a positive impact on the development of the economy and the stock market. The
examination included data of market capitalization as a proportion of the Local
GDP and Ghanacedi and Dollar exchange and the net FDI influx of the quarters
between the years 1991 to 2006. With the use of multivariate co-integration
analysis and the Vector Error Correction Model., the study revealed that the
relationship between FDI and the Ghanaian stock market will be beneficial in
the long run for the country.