Abstract
The Two-Gap Model suggests that the Poor countries have to rely on the foreign capital inflows (FCI) to fill the two Gaps: Import-Export Gap and the Savings-Investment Gap. There are many forms of the foreign capital inflows like FDI (Foreign Direct Investment), External loans & Credit, technical assistance, Project & non-project aid etc. So, UDC (including Pakistan) have to rely on the Foreign aid, foreign Debt FDI and portfolio investments. The role of these external resources (FCI) always remains questionable. This paper analyzes the impact of the foreign capital inflow on GDP Growth in Pakistan during 1975-2004.
Highlights
The Harrod – Domar Model suggests that the saving rates must be between 18% – 20 % to sustain the 6% growth of GDP
The current study shows a positive impact of foreign capital inflows on the GDP growth in Pakistan during the period of 1975-2004
Foreign capital has helped in boosting the GDP Growth through structural transformation of the economy, laid foundations of the industrial and agricultural sectors, provided technical assistance, policy advice and modern technology, assisted in overcoming the budget deficits and the balance of payments (BOP) deficits and has funded the projects for the social sector development projects
Summary
The Harrod – Domar Model suggests that the saving (as well as investment) rates must be between 18% – 20 % to sustain the 6% growth of GDP. The main objective of this paper is to analyze the effectiveness and impact of the foreign capital inflows (FCI) on GDP growth of Pakistan. The FCI takes two main forms: (1) Private Foreign Investments (includes “Foreign Direct Investments –FDI- and “Foreign Portfolio Investments”), (2) Public and Official Development Assistance – ODA(which includes Bilateral and Multilateral Aids, Loans and Grants etc). In this paper it has been chosen three indicators, for the analysis of FCI’s impact on the GDP growth in Pakistan, initially. Standard error of the estimate is 12190.51, while the value of Multiple Coefficient of Correlation is 0.971 (i.e. there is 97% correlation between GDP and FDI & ODA)
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