How Does Foreign Direct Investment Affect Economic Growth in Pakistan: A Time Series Data Analysis

Abstract

In developing countries, the foreign sector plays an important role and a critically important one for economic stabilization. The yearly data was employed for the period 1975- 2017 for the analysis. The variables of the study include the gross domestic product, foreign direct investment, inflation rate, industry sector growth, broad money, gross fixed capital formation, trade openness, and gross savings. An empirical analysis is done by using and the Augmented Dickey Fuller (ADF) test is applied to analyze the unit root. In the present study, empirical findings demonstrated the negative association between economic growth and foreign direct investment in Pakistan. This argument also supports the idea, where foreign direct investment will not be in favor of the growth of developing countries as the domestic industry would not compete to the foreign industry which provides the products at a low rate. Secondly, foreign direct investment in Pakistan is not that level which can affect the GDP of Pakistan.