Empirical relationship between Foreign Direct Investment and Economic Variables of Pakistan

Economic growth of developing countries primarily depends upon the various socio-economic factors such as level of output, rate of saving and investment, standard of living of people, per capita income as well as national income and finally on industrial development.Pakistan is the second largest economy in the south Asia in terms of market size and availability of cheap labor force, however, failed to attract the surge of FDI inflow in the economy during last two decades.More specifically, the foreign investment comes in Pakistan generally on the basis of relation i.e.Pak -US relationship whose effect can be observed clearly during interval 2000 to 2007.Later, the financial crisis dumped the world economy resultant the developed countries channelize their investment within country to cope up with the worsening effect of financial crisis rather than concentrating on foreign investment.The prime motto behind this study is to observe the challenging effect of FDI inflow on the economy of Pakistan during most impressive period in Pakistan history in terms of foreign investment.In this study the economic growth of Pakistan is being measured by developing the econometric model over various indicators such as GDP, GDPPC, GNI, TOP during clustering period 2000 to 2012.Empirical results shows that the entrance of FDI, however, uplifted the status of GDP whereas another variables are negatively influenced during first interval i,e.2000 to 2006.On the other hand, during second interval of study i.e. 2007 to 2012 the entrance of FDI inflow strongly affected the status of GDP Per Capita, whereas other variables are negatively influenced.At last, despite of favorable investment environment and key macroeconomic fundamentals, the Pakistan is still legging continuously in attacking the large FDI inflow caused to poor infrastructure, terrorist activities, energy issues, distortion in law and orders and large security issues.