ECONOMIC GROWTH OF SOUTH ASIAN COUNTRIES

Abstract

This study attempts to empirically explore the possible relationships of multiple forms of foreign capital inflow i.e., foreign direct investment (FDI), foreign debt, worker remittances, foreign grants, and foreign aid on domestic investment in order to quantify the degree of effectiveness of each form of capital inflow. The context of study is the economic development of Pakistan whilst utilizing the time series data (secondary) over the period of 1980-2020. In order to the association among multiple variables used, correlational research design is used. Granger's causality test was applied in order to check the causal impact of the variables. Hence, to examine the degree of effectiveness of each form of foreign capital inflow on domestic investment, ordinary least square regression model technique is applied. The results of the study reveal that the foreign direct investment is the most contributing factor, as it stimulates the domestic investment in Pakistan. Besides, worker remittances followed by external debt are also significant and positively augments the domestic investment. On the contrary, foreign grants and foreign aid does not facilitate the recipient country in the enhancement of domestic investment but not significant though. However, the policy makers in Pakistan should ensure the conductive and supportive environment in order to attract the foreign direct investment to facilitate foreign investors in a more befitting and appropriate manner.