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Macroeconomic factors determining FDI impact on Pakistan's growth

Khalid Zaman (Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan)
Iqtidar Ali Shah (Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan)
Muhammad Mushtaq Khan (Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan)
Mehboob Ahmad (Bahria University, Islamabad, Pakistan)

South Asian Journal of Global Business Research

ISSN: 2045-4457

Article publication date: 2 March 2012

3578

Abstract

Purpose

The purpose of this paper is to identify major macroeconomic factors that enhance foreign direct investment (FDI) for Pakistan through the co‐integration and error correction model over a 28‐year time period, i.e. between 1980 and 2008.

Design/methodology/approach

The study employed the Johansen co‐integration technique to estimate the long‐run relationship between the variables, while an error correction model was used to determine the short‐run dynamics of the system.

Findings

Finding suggests that FDI has had a significant positive impact on Pakistan's economic growth in the long run. For example, trade liberalization and their interactive terms have a positive effect in the short run, while a negative effect is observed in the long run upon economic growth of Pakistan. The results indicate that due to a low quality of human capital in Pakistan; the direct effect of FDI on economic growth becomes negative.

Research limitations/implications

The study was limited to a few variables, including human capital, trade openness, government size, population and consumer price index, in order to manage robust data analysis.

Practical implications

The authors find that for FDI to be a significant contributor to economic growth in Pakistan, government must focus upon improving physical infrastructure, and quality of human resources.

Originality/value

The study confirms that Pakistan did not enjoy substantial growth benefits from FDI because human capital, trade openness, government size and interactive terms of FDI and per capita income have a negative impact on economic growth. These findings have important policy implications.

Keywords

Citation

Zaman, K., Shah, I.A., Mushtaq Khan, M. and Ahmad, M. (2012), "Macroeconomic factors determining FDI impact on Pakistan's growth", South Asian Journal of Global Business Research, Vol. 1 No. 1, pp. 79-95. https://doi.org/10.1108/20454451211207598

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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