Impact of FDI and Trade Balance on Economic Growth during 1990-2014, a Case Study of Pakistan

Abstract

Purpose:The purpose of this study is to investigate the impact of macroeconomic variables, Foreign Direct Investment and Trade Balance on the Economic Growth (GDP) on Pakistan economy by using the 25 years data from the time period 1990-2014.Methodology:For the empirical finding time series annually data are used to monitor by examination the stationarity of all dependent and independent variables. Unit root (ADF) test are used to check the stationarity of all the variables. Additionally The Johansen co-integrated test to check the long run relationship in the middle of the variables and to see the short run relationship VECM are used. All the variables are significant, and goodness of fit use regression the econometric model is analyses.Findings:The study found that there is significant impact of independent variables Foreign Direct Investment and Trade Balance on dependent variable GDP. And the signs of co-efficient shows, Trade Balance have negative relation with GDP while Foreign Direct Investment has positive relation with GDP.

Keywords: Unit Root , Co-integrated , ECM , Regression , FDI , Trade Balance