Influence of Foreign Direct Investment on Gross Domestic Product; an Empirical Study of Pakistan

Abstract

Empirical study was conducted to assess the relationship and impact of Foreign Direct Investment (FDI) on the economic growth of Pakistan. FDI plays critical role in the development of economy. There is a positive relationship between the Gross Domestic Product (GDP) and Foreign Direct Investment (FDI). With the increase of FDI, GDP of the country also increases. It has been observed that in the developing countries GDP growth is more dependent on foreign direct investment. People Republic of China is from one of the recent examples. Chinese companies are investing a large amount in the different sectors of Pakistan. FDI is boosting country GDP and attracting multinationals organizations towards making investment in the country. It is found that world see Pakistan as an important destination for outward FDI projects because of its cheap labor cost, strategic location and investment incentives. It is expected that this research will be helpful to investors to comprehend an overall investment scenario as well as government policy makers to take necessary steps for creating a favourable investment climate for foreign investors in Pakistan. It has been observed that in 2012, there is 11.9% decrease in financial assets and direct Investment has increased by 10.6%. Direct Investment is 6.6% of total assets. Till 2011, Direct Investment in Pakistan was US $20,916 million but in 2012, with the increase of US$ 2,209 million it became US$23,126 million. During 2012, portfolio investment increased 24.1%.