Impact of Foreign Direct Investment on Poverty Reduction in Pakistan

Abstract

Many developing countries are competing to attract foreign direct investment with a belief that it can be a tool for poverty reduction. The government of Pakistan has opened several economic sectors to attract foreign investors and also issued several investment incentives for foreign investors. Since the market oriented economic reforms took place in 1992, in which emphasis has been given to attract FDI. In this study, the relationship between FDI and poverty reduction is analyzed empirically. It is based on time series data which are collected from the Hand Book of Statistics, World Development Indicators (WDI) and Economic Survey of Pakistan. The period covered in this study was 1973-2011.The first model in this study was estimated by using the ARDL technique. The results showed that there was positive relationship among Investment to GDP Ratio, Trade Openness, Exchange Rate, Political Stability, Financial Development and FDI. The second model was estimated by using the co- integration technique. The results showed that FDI had a negative impact on Poverty and hence reduces Poverty in the country along with other control variables like Financial Development, Gross Domestic Product and Public Investment which also reduces poverty in the country.