The Relationship between Foreign Direct Investment, Exchange Rates and GDP of Pakistan

Submitted By:

1

The Relationship between Foreign Direct Investment, Exchange Rates and GDP of Pakistan

This Thesis is submitted to the Department of economics in partial fulfillment of the requirement for the Degree of Master of Economics

Submitted to:

Submitted By:

2

Research Supervisor: ___________________________

External Examiner: ____________________________

Department of Economics Session

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TABLE OF CONTANTS

Abstract

Acknowledgment

List of Acronyms & Abbreviations

Chapter 1 Introduction 1

1.1 Background of the Study 1

1.2 Research Objectives 4

1.3 Significance of the Study 4

1.4 Scope of the Study 4

1.5 Limitations of the Study 4

Chapter 2 Literature Review 6

Chapter 3 Methodology 14

3.1 Data type 14

3.2 Data source 14

3.3 Variables 15

3.4 Hypothesis 15

Chapter 4 Data Analysis 16

Chapter 5 Conclusion & Recommendations 21

References 24

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Abstract

Foreign direct investment is important source of economic growth for Pakistan. This

study was conducted to identify the relationship among FDI and economic growth of

Pakistan for the period 1971 to 2009 using time series data. Statistical techniques

include regression analysis, unit root test Johansen co-integration test using annual

data and the results showed positive relationship between FDI and growth. The

analysis concludes that there is long run relationship among them. Co integration

test results that one co integration equation exists in variables. This means that there

is long run relationship between the variables.

FDI enhances economic growth, due to which the living standard of people of

Pakistan will be increased directly as well as indirectly. FDI brings technological

advancements and increases the investment in the country by attracting foreign and

domestic investors.

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ACKNOWLEDGMENT

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Chapter 1

Introduction

1.1 Background of the study

From the last 40 years countries give more importance to the FDI because FDI is

considering the source of the financial growth and for the development of the

country. In current years the growth of the FDI acts as a catalyst on the EG. FDI

bring positive changes in host countries for example it provides the required capital,

it improves the managerial skills; provide latest marketing technique, and modern

technology to the host countries

From 1980 all developed and non-developed countries are trying to attract the FDI

by making suitable policies rules and regulations for other investors and firms.

Return from host country is one of the main factors that attract the foreign firms and

investors for investing in host countries because the profit from host countries

motivate investors and firm to invest money. Foreign firms and investors like those

countries for investments that give high return to investors. Foreign investors faces

lose in those countries whose market conditions are not same for the foreign

investors therefore they do not want to invest money in those countries. However

past research shows that foreign invest in those countries even they face loses in

their investments.

Empirically there is a lot of the controversies’ between the authors regarding the

effects of overseas investments and growth. Some of them present the arguments

that FDI have impact on EG and some of them present arguments that FDI effect

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positively the EG. Previous literature shows that there is positive connection among

FDI and financial growth of the country. That it depends on the market conditions

and economic stability of the country.

FDI play important role for the EG of various countries in the world. But its role is

very beneficiaries’ for the Asian countries and especially for Pakistan. In the current

years all the developed and non-developed countries of the world consider FDI is

the important source of the EG including Pakistan. It plays important roles in those

countries which have shortage of capital, lack of the managerial skills, and new

technology.

In case of Pakistan the inflow of foreign direct invest increase day to day and in few

years it reach $332.4 millions to $5153 millions. In Pakistan there are money

important areas of the FDI such as energy, banking, telecom, and foods.

These four groups consist of 80% of the FDI. Pakistan now tries to make flexible

policies, rules and regulations for the FDI and therefore now Pakistan is consider

one of the friendly countries for foreign investments in Asia.

Initially foreign investors face some difficulties in Pakistan because market

conditions are not suitable for the investments purpose in Pakistan. Now

governments and other responsible authorities are making policies to improve

market conditions for foreign investments. Investors now do not face any problems

in investing money in Pakistan even now they can invest up to 100% money in some

sectors of Pakistan. Similarly business rules and regulations in Pakistan are now

very suitable for the investors.

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According to Yousaf Hussein and Ahmad in Pakistan there is a positive impact of

FDI on the growth of the country. Export of Pakistan is dependent on FDI increase.

EG, export and financial development can be positively related to FDI that has a

positive impact.

Like other countries Pakistan is trying to opportunities of the FDI in his door. It is

expected that FDI will bring benefits for EG of Pakistan. However Pakistan is not so

much efficient to avail the opportunities of the FDI but try to make the conditions

more suitable for foreign investments.

Hossain.A (2012) in this research he studies about the co integration relationship

between FDI” and economic output of Pakistan, India, and Bangladesh. In result he

found that there is no relationship among these variables. He also checks that the

long run relationship and come to conclusion that it has no long run relationship.

According to the Attaullah (2006) the inflow of the FDI increase in Pakistan day to

day but it is not too much high to increase the inflow of the FDI in the governments

and other responsible to make best policies and rules regulations to attract the

foreign investments.

FDI are one of the most important sources of the country development and EG

because it increases the export rate and improve financial development of the

country. FDI enhance the EG of the developed countries strongly than non-

developed countries because the market and economic conditions of the developed

countries are more stable than non-developed countries.

FDI bring some positives changes in host countries. In Pakistan some of the most

important benefits of the FDI are it enhances the utilization of the local material in

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Pakistan, it introduces new techniques about the marketing and management in

Pakistan, and it makes easy the understanding of the new technology in Pakistan.

1.2 Objectives of the study

This study focuses on FDI and economic growth and their relationship. The findings

are considered to be consistent with the previous studies that will help in decision

making of government sector to contribute real EG. The main purpose of this study

is to find the relationship among FDI, economic growth and exchange rate of

Pakistan, but the main focus on FDI and economic growth.

1.3 Significance of the study

Significance of this study is that foreign direct investment is the main source of

improvement in the financial output of the country. Foreign direct investment

enhances the growth of the country as well as the country can be economically

strong. Gross domestic product is the real income of the country and the FDI has

strong impact on GDP and have long run relationship among them.

1.4 Scope of the study

FDI and EG relationship is reported in the context of Pakistan. Data regarding FDI

and EG is taken from SB of Pakistan. The focus of this study is limited to Pakistan.

In this research we will study the impact of FDI on the EG of Pakistan

1.5 Limitations of the study

The limitations and difficulties that are related with this research were unavailability

of the reliable data, the time span, and research experiences.

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1.6 Hypothesis of the Study

To find the relationship between the FDI and GDP of Pakistan.

To find the relationship between the Exchange Rates and GDP of Pakistan.

1.7 Organization of the Study

The study has been organized as chapter one contains introduction to the FDI and

Exchange rates. The chapter two contains literature review about the study. In

chapter three research methodology and sample design is included. In chapter four

data analysis is carried out and results has been estimated. Chapter five deals with

the discussions and recommendations.

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Chapter 2

Literature Review

Dunning (1977) a case of the Asian countries present these arguments than when

one firm want to invest in foreign first he look the return of investments from that

country. If the return is high from investments than firms invest money in foreign

countries and if the return is negative than firm do not want to invest money. He

suggests that to take the advantages of the FDI the host country should be

economically and politically stable because the economic and political situations of

the host country affect the advantages of the FDI.

Balasubramanyam et al (1996) analyze the impacts of FDI on the economy of 46

countries on the basis of the cross sectional data of the 46 courtiers related to FDI

and gross domestic products. He found that in 46 countries that it has positive

impact among each other.

Olofsdotter (1998) presents same arguments that FDI and growth are positively

correlated to each other. According to him increase in FDI stocks has direct

relationship with the host country growth. He presents these arguments that when it

is increases the growth of the country also increases.

Borensztein et.al” (1998) conducted a research on the basis of technology and stated

that EG depends on FDI. According to him FDI is the important vehicle for the

transfer of the technology in the host country. He also presents these arguments that

FDI is profitable when efficient capability of the technology uses is available in the

host country. Human capability suggests the direction of EG that is positively

related to FDI.

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Dees (1998) suggest in his research the impact of FDI on EG of china. He observes

in china that there is direct relationship among these two variables. He suggests that

for the development of the china EG is the main source.

La Porta et al. (1998) “found in research that the economic growth and FDI are

related to each other. He uses regression analysis between the FDI and the export

rate. “He found that FDI have direct relationship with the EG. According to him FDI

increase the export of host country which improves EG of the host country.

Borenzsteinet al (1998) studied in the research about the FDI and growth of the

developed countries. According to him FDI is an important source for the developed

countries he found that due to FDI the country can be cost-effectively strong as well

as their growth can be stable. He explain that increase of the FDI will bring positive

changes in EG of the country and decrease of the FDI decrease EG host countries he

called this the effects of the FDI shrinkness. In order to become financially strong

every country should have to keep in mind and plan for the betterment of the

overseas investments in the country. The shrinkness of the FDI is very common in

those countries which have economic and a political instability, negative return of

investments and weak corporate governance system. The bad situation of the

country and inflation in the country the overseas investment become decreases.

Bosworth and Collins (1999) provide bases that FDI brings some positives changes

in the host countries for example when investment increase the export of the country

also increases, similarly FDI brings positives changes in domestic investments. The

end result of the study suggests FDI are the best sources of the EG. Similarly this

study shows that the decreasing of FDI has negative impacts on the EG of the host

country. Means that when money inflow in the country it increases the country

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become financially and economically strong. So the government should attract the

foreign investors to invest in the country.

According to the study of Bosworth and Collins (1999), with the decrease in

economic growth the FDI also decreases, and this is very common in those countries

which have weak corporate governance system. It means that if economic growth

decreases it directly affects the FDI and FDI decrease as well. Corporate governance

also play key role in this scenario.

Bosworth and Collins (1999) present these arguments that the impacts of the FDI is

high in those countries which has strong corporate governance system and has

negative impacts on those countries which has weak corporate governance system.

FDI an EG were resulted by De Mello (1999) and concluded that these two variables

have an impact but the magnitude is positive and weak. So when there are better

opportunities in the country then the domestic as well as foreigner investors easily

attract and the growth can be achieved.

Khan and Kim (1999) suggested that new technology and funds in Pakistan are best

described by FDI. Policy makers provide better opportunities to the investors. In

Pakistan there are lots of opportunities but due to political situation the economic

position still weak. He checks that Pakistan became technologically strong because

of FDI.

Barthelme and Demurger (2000) also find the same direct relation among the FDI

and EG in china. According to them foreign investments improve export of china

which improves EG of china. They also observe that due to stable economic

condition of china the impact is very high.

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Assad (2001) presents the arguments that economic development and FDI has the

direct relation. It means that exports increase the financial development and EG of

the host country. They found that FDI have positives impacts on EG and bring

positive changes in the financial growth and EG. FDI increase the financial growth

and development but the improvement is dependent on political condition as well as

the economic condition of the country.

Larsson et al. (2001) conduct a research in Asian countries on the basis of panel data

to find the impact of the FDI on the Asian countries economic growth. During the

research he determined that in Asian countries there is positive relationship between

these two according to this research this result that when FDI increases and export of

the Asian countries also increases.

Nunnenkamp (2002) investigated new arguments. “According to him FDI has

positives impacts on the EG”, export, and economic development of the country. He

said that EG due to FDI depends on the market conditions of the host country. If the

economy conditions of the host country is suitable for FDI than it brings positive

changes. Similarly if the economic conditions of the host country are not suitable

then EG cannot be improved by FDI.

Zhang (2001) and Choi (2003) individually reported a study and justified previous

findings of positive relation between FDI and EG. According to them It will increase

the growth of the country. When there is macroeconomic stability in the host

country.

Ali Raza Karbasi, Ibrahim Mohammad and Samane Ghofrani (2002) “analyze the

position of FDI on the EG. They select data from 42 developed and non-developed

countries of the world. They found the same result about FDI and economic growth

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of the country. The country can be financially strong because of foreign direct

investment. According to them FDI improve the financial conditions of the countries

which increase the export of host countries. And conclude that for the EG of the

country FDI, export and human capabilities are the important sources.

Liu et al (2002) “analyzed that because of foreign direct investment the growth of

the china increased during 1981 to 1994. He comes to conclusion that due to FDI

country can be economically strong. He presents these arguments that when FDI

increase in china than economic conditions of the china take growth.

Chakraborty and Basu (2002) use co integration and error correlation model

between the FDI and EG in India. The result, that is there positive relationship

between FDI and EG of India”. End result of their research shows that FDI are only

source of EG. They also present these arguments that the impacts of foreign

investments are stronger in financially and economically stable countries.

Kohpaiboon (2003) a case of Thailand shows that FDI has a source to improve the

financial and economic position of the country. He conclude that because of foreign

direct investment the exports of the Thailand increased and it have positive

relationship with each other

Alici and Ucal (2003) conduct a research about the FDI and growth of the country in

turkey. They conclude that there is no impact of FDI on the economic output”.

According to them the macroeconomic conditions of the Turkey are not suitable for

FDI. In research he mentions that the political situation of Turkey is not good for

overseas investments because there are no attractive opportunities available in the

country.

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Bengoa and Robles (2003) analyze the cross sectional data of 18 Americans

countries and present the same conclusion that due to FDI growth and export can be

improved. Similarly the impacts of the FDI in those countries which have stable

economic conditions and weak in those countries which have unstable economic

conditions.

Bengoa and Sanchez (2003) analyze that export; financial development and FDI

have strong relationship. According to them the importance of the FDI cannot be

overlooked. It increases the export of Pakistan, and also increases the domestic

investments of Pakistan. So for the economic growth Pakistan needs foreign

investments.

Metwally (2004) studied association linking the FDI and EG for Egypt, Jordan and

Omen from 1981 to2000. This research suggests that FDI influence the economic

output of the country. According to this research FDI increase the export which

improves the economic conditions of the country.

Baliamoune Lutz” (2004) analyzed the connection between the FDI and EG from

1973 to 1999 in Morocco. By applying various techniques he comes to conclusion

that growth depends on economic output of the country.

Zhang (2005) conduct research in china about the impacts of the FDI on the EG.

According to him FDI only influences the EG of the host country but it is one of

superior force for the EG of the host country.

Blonigan and Wang (2005) “Mentioned in his research that their direct relationship

among the FDI on the EG of the country”. This research also find that growth

depend on some characteristics of the host country. According to them factors that

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affect the country growth are the market size, availability of the information and

human capital these factors affects the EG of the host country.

Johnson (2006) work related to this topic he determined the impact. To conduct this

research he select the dependent variables EG, gross domestic products, export, and

financial development while the independent variables was the FDI. In regression

analysis he found that FDI and EG have the relationship. According to this study

FDI bring positive changes in EG, export rate, financial development of the country.

He also add some extra that the macroeconomic stability are also important for the

EG of the host country along with the FDI because if the macroeconomic conditions

of the host country is not stable than FDI brings negative changes in host country.

Frank Hsiao and Mei Hsiao (2006) research study about the correlation among the

FDI, GDP and export in south Asia. “According to them FDI has positives link with

GDP, export, and EG of the particular country.

Shahbaz Awan and Ali (2008) “a case of Pakistan”“FDI has positives relationship

with the EG” and gross domestic products of Pakistan. This research shows that FDI

improve the EG and gross domestic products of Pakistan. When FDI increases in

Pakistan EG and gross domestic product of Pakistan also increases. It is considering

in Pakistan that inflow of FDI create positive impact on the host country. “FDI have

positives impacts” on domestic investment, employments, export of Pakistan.

Ghazali. A (2010) conclude that there is high degree of direct correlation between

the economic out and FDI during 1981 to 2008. Great connection can enhance the

domestic investment in the country. He also gives suggestion that the government

should make policies about this.

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Anwara and Nguyen (2010) the result of this study shows that “GPD of Pakistan and

FDI has direct relationship. According to him when FDI increase in Pakistan the

export of Pakistan increase which increase the EG of Pakistan. He checks that the

FDI and economic growth are closely related to each other of the particular country,

only when the macroeconomic conditions of the host country are stable.

Shahbaz and Rehman (2010) found in the study that the relationship between the

EG, and export with FDI. He indicates that economic condition of the country is

closely related to FDI. Due to this he find out that economic growth of Pakistan can

be strong if they provide better opportunities to the foreigners as well as domestic

investors. They present these arguments that FDI not only improve EG Pakistan but

it also improves financial development of Pakistan.

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Chapter 3

Methodology

The purpose of this research is to find out the relationship between the FDI and

economic growth. Where the GDP is dependent and exchange rate and FDI are the

independent variables. We will study the impact of exchange rate and FDI on GDP

that whether both of them impact GDP or one of them. Unit root test is used for the

stationary of the data and co integration test used to find that the variables are co

integrated or not. By using time series data from 1971 to 2009 and 39 observation

are included. The data for this study is taken from the state bank of Pakistan and

different websites of Pakistan related to FDI, gross domestic products, and exchange

rate.

Y=β0 + β1 x1+ β2 x2 +e

Y= EG

X1= FDI

X2= Exchange rate

3.1 Data type

Data of the research is secondary in nature to get the required

result of the research.

3.2 Data sources

The data sources of the research are

1) Internet

2) Published articles

3) State bank of Pakistan

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4) Pakistan economic survey

3.3 Variables of the study

1) FDI

2) Exchange rate

3) Gross domestic product

3.4 Hypothesis of the study

1) H0: there is no relationship between FDI, exchange rate and

Economic growth of Pakistan.

2) H1: there is relationship between FDI, exchange rate and Economic

growth of Pakistan.

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Chapter 4

Data Analysis

Unit root test for exchange

Interpretation

According to the condition of the stationary that the probability value must be less than

0.05 and the t-statistic value is greater than 0.05 which means that the data is stationary

at first difference. In the above table the probability value of the exchange rate at 1st

difference is 0.001 which is less than 0.05 it means that the data is stationary.

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Null Hypothesis: D(EXCHANGE) has a unit root

Exogenous: Constant, Linear Trend

Lag Length: 5 (Automatic based on SIC, MAXLAG=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -6.220464  0.0001

Test critical values: 1% level -4.273277

5% level -3.557759

10% level -3.212361

*MacKinnon (1996) one-sided p-values.

Unit root test for FDI Null Hypothesis: D(FDI) has a unit root Exogenous: Constant, Linear Trend Lag Length: 1 (Automatic based on SIC, MAXLAG=2)

t-Statistic Prob.* Augmented Dickey-Fuller test statistic -5.542359 0.0003

Test critical values: 1% level -4.234972 5% level -3.540328 10% level -3.202445 *MacKinnon (1996) one-sided p-values.

Interpretation

In this table the probability value of the FDI is 0.0003 at 1 st difference which is less

than 0.05 and the t-statistic value greater than critical value which shows that the

data is stationary. It means that there is stationary in the data.

Unit root test for GDP Null Hypothesis: D(GDP) has a unit root Exogenous: Constant, Linear Trend Lag Length: 0 (Automatic based on SIC, MAXLAG=9)

t-Statistic Prob.* Augmented Dickey-Fuller test statistic -4.015139 0.0168

Test critical values: 1% level -4.226815 5% level -3.536601 10% level -3.200320

Interpretation

In the above table the probability value of the GDP is 0.0168 at 1st difference is less

than 0.05 and the t-statistic value is greater that critical value means that the data is

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stationary. But after this for the justification of the data we apply the co integration

test in order to check that the variables co related with each other or not.

Johansen Co integration Test

Date: 03/04/13 Time: 16:34 Sample (adjusted): 1974 2009 Included observations: 36 after adjustments Trend assumption: Linear deterministic trend Series: GDP FDI EXCHANGE Lags interval (in first differences): 1 to 2

Unrestricted Cointegration Rank Test (Trace) Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.** None * 0.646214 48.52337 29.79707 0.0001

At most 1 0.263093 11.11708 15.49471 0.2044 At most 2 0.003508 0.126519 3.841466 0.7221

Trace test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values

Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized Max-Eigen 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.** None * 0.646214 37.40630 21.13162 0.0001

At most 1 0.263093 10.99056 14.26460 0.1547 At most 2 0.003508 0.126519 3.841466 0.7221

Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values

Interpretation:

Co integration test used to check the long run relationship between variables that the

variables are co integrated or not. In the above table the trend assumption is Linear

deterministic trend and lags 1 to 2 the P-value of the none is less than 0.05 which

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means that it is significant. This value indicated that there is 1 co integration

equation.

Regression

Dependent Variable: GDP Method: Least Squares Date: 03/05/13 Time: 22:42 Sample: 1971 2009 Included observations: 39 Convergence achieved after 44 iterations Backcast: 1967 1970

Variable Coefficient Std. Error t-Statistic Prob. C 4.123451 6443.844 6.422644 0.0000

FDI 0.157423 0.036717 4.287471 0.0002 EXCHANGE 3.236178 168.3864 11.21336 0.0000

MA(1) 1.572560 0.183674 8.561674 0.0000 MA(2) 1.488733 0.337929 4.405458 0.0001 MA(3) 0.562003 0.348279 1.613660 0.1164 MA(4) 0.252098 0.204500 1.232754 0.2266

R-squared 0.944805 Mean dependent var 104313.4

Adjusted R-squared 0.943831 S.D. dependent var 58018.28 S.E. of regression 4556.972 Akaike info criterion 19.84785 Sum squared resid 6.65E+08 Schwarz criterion 20.14644 Log likelihood -380.0331 F-statistic 1021.286 Durbin-Watson stat 1.957399 Prob(F-statistic) 0.000000

Inverted MA Roots -.10-.51i -.10+.51i -.68+.69i -.68-.69i

Interpretation:

The regression analysis shows the impact of different independent variables on GDP

which are included in a model. Coefficient shows the direction of the variables that

they are positively or negatively affecting the dependent variable. C is a constant

which shows that 4.12% variations in the dependent variable due to other variables

which are not included in the model and it has significant relationship with a GDP.

FDI probability value is 0.002 which is less than 0.05 so it has significant and

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positive relationship with GDP as suggested by economic theories. Coefficient of

FDI explains that 1 unit increase in FDI will increased the GDP by 0.157423 units.

Exchange rate has positive relationship with GDP if exchange rate increased by 1

unit GDP will increased by 3.236%. MA (1) in regression table shows that there is

positive 1.57% impact on GDP MA (2) also show positive 1.488% impact on GDP

while MA (3) and MA(4) has positive impact on GDP but statistically not prove

hence we cannot rely on this. These four are the economic shocks which impact the

Pakistan economy up to four years consistently. F statistics value is less than 0.05

which is significant which shows the positive relationship between dependent and

independent variable. Durbin-Watson statistics show that there is no auto

correlation. R2 represent the explanatory power of independent variable in the

dependent one. The result showed the value of R2 94.44%, that means the economic

growth is highly explained by FDI and exchange rate. The model shows significant

FDI and exchange rate that justifies previous researches findings of positive linkage

between FDI and Economic Growth.

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LM Test for Serial Correlation .

Breusch-Godfrey Serial Correlation LM Test: F-statistic 2.285994 Probability 0.045073

Obs*R-squared 9.576178 Probability 0.068205

Interpretation:

LM test is being used for serial correlation. It is the assumption of good regression

model that there is no serial correlation. The probability value of Obs*R-squared is

greater than 0.05 which means that there is no serial correlation.

Chapter 5

Conclusions & Recommendations

Conclusion

There are so many arguments for the impacts of the FDI on the EG of the country

some of them are according to it and some are against it. Some of the past researches

show that there is positive relationship between the FDI and EG of the country

27

Some of previous researches suggested that FDI has negative relationship with the

EG of the country

This research study concluded positive impact of FDI over EG in the context of

Pakistan. It was also found that exchange rate also plays important role in the

contribution of economic growth in Pakistan. Positive correlation shows that if FDI

increases it will effect economic growth and vice versa, like wise exchange rate

increases, economic growth will also increases. Co integration results showed a long

run relationship among variables, one co integrated equation was present. The long

run relationship suggested to do regression analysis on the data to report the positive

or negative relationship between FDI and EG and ER and EG. From the study it was

concluded that FDI are considered as an important source of the development of

Pakistan.

Implications of the research

The result of this research suggests some implications for the monetary and fiscal

policy makers in Pakistan. Therefore less developed countries including Pakistan

should encourage the foreign investors for investments in their countries.

To attract foreign investors for investing in Pakistan, policy makers should keep in

mind that all of the policies related foreign direct investments should be suitable for

investments.

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Policy makers should make such kind of policies, rules and regulation which not

only encourage the foreign investors but also to motivate the foreign investors to

improve the domestic investments of Pakistan.

Recommendations of the study

This research study shows that FDI have positive impacts on the EG of the Pakistan.

Therefore, FDI policy makers of the Pakistan should make such kind of policies and

rules regulations that not only attract the investments of the foreign investors but

also encourage the foreign investors to participate in the domestic development of

Pakistan.

For the development of the FDI government should take some serious steps because

FDI contributes a lot to economic growth of the country.

Because of security condition of Pakistan the foreign investors are not willing to

invest in Pakistan, as they feel that conditions are uncertain and not good for

investment. So the government should take some serious steps to provide better

environment for the investors.

Due to electricity shortage the foreign investors are not investing in Pakistan. It is a

huge problem as it affects the business industry directly. So the government of

Pakistan should take initiatives to overcome this problem.

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