An Econometric Analysis of Foreign Direct Investment and Economic Growth of Pakistan

Abstract

The aim of this paper is to empirically analyze the economic growth of Pakistan during time period 1960-2012. The data is taken from various sources WDI (World Development Indicators), IFS (International Financial Statistics) and Handbook of statistics on Pakistan economy-2005. The gross domestic product (GDP) is taken as dependent variable while foreign direct investment (FDI), Import (IM), Export (EX), Inflation (INF), Exchange rate (EXCR) and gross fixed capital formation (GFCF) are used as independent variables. The methodology to test relationship among these variables is co integration technique after unit root analysis. The unit root analysis show that all variables except inflation are non-stationary at level but becomes stationary at first difference. The results of co integration analysis show that all seven variables have a long run relationship. After this, least square regression was applied on first difference and found that however regression is overall significant but there is problem of multicollinearity. Therefore we don’t rely on this regression for their significance and also their co efficient sign.

Keywords: GDP, FDI, EXPORTS, PAKISTAN