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IMPACT OFIMPACT OF

FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT

ONONECONOMIC GROWTHECONOMIC GROWTH

IN PAKISTANIN PAKISTAN

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Names of group Members

Muhammad Shakeel

Dil Khurram

Zovia Bano

Muhammad Awais Asghar

Jawad Ali Ray

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Introduction

Foreign direct investment (FDI) is often

seen as an important catalyst for economic

growth in the developing countries. Itaffects the economic growth by stimulating

domestic investment, increasing human

capital formation and by facilitating thetechnology transfer in the host countries.

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FDI Effect

It is normally believed that FDI effect the

Economy of a host country by:

Increase in the employmentAugment in the productivity

Boost in exports and

Amplified pace of transfer of technology.

The amount of FDI increased significantly fordeveloping economies during 1985 to 2006.

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Objectives of Study

The main purpose of the study is toinvestigate the impact of FDI on economic

growth in Pakistan, for the period 1980-

2010.

To identify the role of FDI in the economic

growth in Pakistan to analyzing the

patterns of FDI in Pakistan.

Provide the possible policy implication for

future trade policy and economic growth

based upon the analyzing and empirical

finding.

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ModelModelThe effects of FDI on economic growth, the

model used can be specified as follows:

g = a + b1 L + b2K + b3FDI + b4 TRD + b5HC

Where g is the real GDP.

L is economically Active Labor Force,

Kis the Domestic Capital Investment,

FDI is the Foreign Direct Investment,

TRD the Trade,

HC is Human Capital.

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Theoretical Framework

Active LaborForce (L)

Domestic

Capital (K)

Foreign Direct

Investment

(FDI)

Trade

(TRD)

Human Capital

(HC)

GDP

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Data Collection & Sampling

The data on the variables is taken from theeconomic survey of Pakistan and the World

Bank Development Indicators. And 30

observations (1980-2010) will be based on

secondary data.

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Results

We use SPSS for finding the impact of eachIndependent variable on Dependent variable.

g = a + b1 L + b2K + b3FDI + b4 TRD + b5HC

g = 5.44023 + 0.6743L + 0.3983K - 0.1612FDI + 0.0494TRD + 0.6744HC

The estimated value for R2 is 0.98 and shows

that the 98% of the total variation in GDP is

explained by these 5 independent variables.

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Impact of Active Labor Force on GDP

The coefficient of labor force is positive andsignificant, with value 0.6743 For one unit

change in labor the economic growth (GDP)

increases by 67.43%.

This positive contribution of labor towards

The economic growth. Because when labor

is more efficient then positive impact on

GDP.

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Impact of Domestic Capital on GDP

The coefficient of Domestic capital is positiveand significant and the value 0.3983 that shows

For one unit change in Domestic Capital the

Economic growth (GDP) increases by almost39.83%.

This shows the positive contribution ofDomestic Capital formation on economic

growth in Pakistan has been positive,

for 1980-2010.

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Impact of Human Capital on GDP

The coefficient of human capital is positive

and significant, with value 0.6744. For one

unit change in human capital the economicgrowth (GDP) increases by 67.44%.

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Impact of FDI on GDP

For the variable FDI, the variable of primeinterest in this study the coefficient of FDI is

-0.1612 that is also not statistically

Significant. This low value of FDI showsnegative impact on economic growth.

For one unit change in FDI the

Economic growth (GDP) decreases by

-16.12%.

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Impact of Trade on GDP

The result for the last variable trade ispositive but not significant with value

0.0494.

For one unit change in Trade (Exports) theEconomic growth (GDP) increases by

4.94%.

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Conclusion

As the results shows that FDI has notContributed much to the economic growth

in Pakistan for the time period 1980-2010,

as compared to domestic capital and labor

Therefore it is imperative for the

government to make a policy for

attracting FDI in such a way that it shouldbe more growth enhancing than growth

retarding.

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Continue

More Greenfield investment should beencouraged along with investment in large

scale manufacturing that can improve the

exports of the Pakistan as well as the

strongest argument for FDI is that it

stimulates exports for the host country.

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Suggestion

y First, the developing countries need to

be attractive to foreign investors.

y Second, the most important is the host

country environment in which foreign

investors operate must be conducive to

favorable FDI effects.

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CONTINUECONTINUE

y For FDI to be a significant contributor

to economic growth, Pakistan would do

better by focusing on improving

infrastructure, human resources,developing local entrepreneurship,

creating a stable macroeconomic

framework and conditions conducivefor productive investments to Speed up

the process of development.

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