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ABSTRACT
In this research study, the impact of foreign direct investment on economic performance is reconsidered for Pakistan using data for the period of 1973-2012. Previous empirical studies ignore the long time spine and application of modernize co-integration. To illustrate the issue, we in this paper estimated the classic growth regression model whereas FDI added an extra explanatory variable and used the annual data series and ARDL approach of co-integration. The aim is to get and construe newest estimates of the responsiveness of gross domestic production to labor force, domestic investment and FDI. According to the results using Augmented Dickey Fuller and Phillips-Perron tests all series are stationary at integrated first order. Further, the evidence support the existence of long run relationship among the variable as GDP is dependent variable. The long run analysis indicates positive and significant role for all three regressors in the regression model. The results are that, the GDP is found highly labor force elastic and domestic investment inelastic, FDI is found to have statistically significant and positive impact on the level of gross domestic production in both long and short run.
Keywords: FDI, Gross Domestic Production, ARDL, Pakistan,
1. INTRODUCTION
Foreign Direct Investment (FDI) is an open economy macroeconomic variable. In a close economy where the individual or government does not interact for economic purpose across the border, investment is financed solely from domestic saving either private or government. However, in open economy investment is financed both through domestic savings and foreign capital flows, where capital flows includes for FDI. It is substantially in contrast of the indirect investment i.e. investment in portfolio flows, wherein foreigners invest in equities Usted on a nation's stock exchange.
FDI got popularity in economic literatures mostly after 1980 and is mostly considered the growth enhancing factor. Since, to attract larger share of FDI many countries not only changed their regulations but also offered tax incentives and subsidies. It is believed that the economic rationale behind offering the special incentives to invite FDI is that the direct investment made by the foreigner produces externalities in the form of technology transfer and spillovers (Damooeei and Tavakoli, 2006). Furthermore, saving-investment gap is the classic problem usually have the developing countries and foreign investment in real goods...