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The Determinants of Foreign Direct Investment in Pakistan

Author

Listed:
  • Anjum Aqeel

    (University of Karachi, Karachi.)

  • Mohammed Nishat

    (Institute of Business Administration, Karachi.)

Abstract

The paper empirically identifies the determinants of growth in foreign direct investment (FDI) in Pakistan over the period 1961–2003. Our main interest is to study how different variables or indicators reflecting the trade, fiscal, and financial sector liberalisation attract FDI in Pakistan. The study uses the cointegration and error-correction techniques to identify the variables in explaining the FDI in Pakistan. The study considers the tariff rate, exchange rate, tax rate, credit to private sector, and index of general share price variables to see if they may explain the inflow of foreign direct investment. Also included are wages and per capita GDP to test for the relative demand for labour and market size hypotheses. All variables indicate correct signs and are statistically significant except for wage rate and share price index. The study clearly emphasises the role of these policy variables in attracting FDI and determining its growth in both short- and long-run in Pakistan, and also indicates a positive and significant impact of reforms on FDI in Pakistan.

Suggested Citation

  • Anjum Aqeel & Mohammed Nishat, 2004. "The Determinants of Foreign Direct Investment in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 651-664.
    • Handle: RePEc:pid:journl:v:43:y:2004:i:4:p:651-664
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    References listed on IDEAS

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    Cited by:

    1. Mohammad Mafizur Rahman & Muhammad Shahbaz, 2013. "Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 59-81, March.
    2. Yilmaz Bayar & Marius Dan Gavriletea, 2018. "Foreign Direct Investment Inflows and Financial Development in Central and Eastern European Union Countries: A Panel Cointegration and Causality," IJFS, MDPI, vol. 6(2), pages 1-13, May.
    3. Garavito-Acosta, Aarón Levi & Iregui-Bohórquez, Ana María & Ramírez-Giraldo, María Teresa, 2013. "Inversión extranjera directa en Colombia : evolución, indicadores y determinantes por firma," Chapters, in: Rincón-Castro, Hernán & Velasco, Andrés M. (ed.), Flujos de capitales, choques externos y respuestas de política en países emergentes, chapter 3, pages 83-136, Banco de la Republica de Colombia.
    4. Anum Shafique & Mehmood Ul Hassan & Akmal Shahzad & Qazi Muhammad Ali & Muhammad Saqlain, 2022. "Exchange Rate Volatility And Its Relationship With Macroeconomic Variables In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(1), pages 121-131, March.
    5. Aarón Garavito & Ana María Iregui & María Teresa Ramírez, 2014. "An Empirical Examination of the Determinants of Foreign Direct Investment: A Firm-Level Analysis for the Colombian Economy," Revista de Economía del Rosario, Universidad del Rosario, June.
    6. Muhammad Shahbaz & Mohammad Mafizur Rahman, 2012. "The Dynamic of Financial Development, Imports, Foreign Direct Investment and Economic Growth: Cointegration and Causality Analysis in Pakistan," Global Business Review, International Management Institute, vol. 13(2), pages 201-219, June.
    7. Shah, Mumtaz Hussain & Khan, Faisal, 2019. "Telecommunication Infrastructure Development and FDI into Asian Developing Nations," MPRA Paper 107255, University Library of Munich, Germany.
    8. Abdul, waheed & Syed tehseen, jawaid, 2010. "Inward foreign direct investment and aggregate imports: time series evidence from Pakistan," MPRA Paper 31270, University Library of Munich, Germany.
    9. Aarón Garavito A. & Ana María Iregui B. & María Teresa Ramírez G., 2012. "Determinantes de la inversión extranjera directa en Colombia: Un estudio a nivel de firma," Borradores de Economia 9672, Banco de la Republica.
    10. Mian Sajid Nazir & Qaisar Hafeez & Salah U‐Din, 2022. "Did reduction in corporate tax rate attract FDI in Pakistan?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2256-2267, April.
    11. Namita Rajput & Subodh Kesharwani & Akanksha Khanna, 2012. "FDI and Indian Retail Sector: An Analysis," Journal of Business Administration Research, Journal of Business Administration Research, Sciedu Press, vol. 1(1), pages 53-64, April.
    12. Degong, Prof. Ma & Ullah, Farid & Ullah, Raza & Arif, Muhammad, 2023. "An empirical nexus between exchange rate and China's outward foreign direct investment: Implications for Pakistan under the China Pakistan economic corridor project," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 224-234.
    13. Ahsen Mukhtar & Muhammad Asif & Ghamz-e-Ali Siyal & Khalid Zaman, 2014. "Institutional-Macroeconomic Nexus: Inducement on Foreign Direct Investment (FDI) in Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(11), pages 465-479, November.
    14. Serfraz, Ayesha, 2017. "What is the effect of foreign direct investment inflows on economic growth in Pakistan? An empirical analysis in the light of religious sectarianism as catalyst for terrorism," ZÖSS-Discussion Papers 59, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    15. Dr. Nazia Sultana & Dr. Khurram Shakir & Abdul Samad Shaikh Ibrahim Noorani, 2021. "The Impact Of Foreign Direct Investment And Remittances On Gdp Growth Rate Of South Asian Economies: An Econometric Analysis," ILMA Journal of Social Sciences & Economics (IJSSE), Ilma University, Faculty of Management Science, vol. 1(1), pages 92-144.

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    More about this item

    Keywords

    Foreign Investment; Pakistan;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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