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IMPACT OFIMPACT OF
FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT
ONONECONOMIC GROWTHECONOMIC GROWTH
IN PAKISTANIN PAKISTAN
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Names of group Members
Muhammad Shakeel
Dil Khurram
Zovia Bano
Muhammad Awais Asghar
Jawad Ali Ray
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Introduction
Foreign direct investment (FDI) is often
seen as an important catalyst for economic
growth in the developing countries. Itaffects the economic growth by stimulating
domestic investment, increasing human
capital formation and by facilitating thetechnology transfer in the host countries.
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FDI Effect
It is normally believed that FDI effect the
Economy of a host country by:
Increase in the employmentAugment in the productivity
Boost in exports and
Amplified pace of transfer of technology.
The amount of FDI increased significantly fordeveloping economies during 1985 to 2006.
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Objectives of Study
The main purpose of the study is toinvestigate the impact of FDI on economic
growth in Pakistan, for the period 1980-
2010.
To identify the role of FDI in the economic
growth in Pakistan to analyzing the
patterns of FDI in Pakistan.
Provide the possible policy implication for
future trade policy and economic growth
based upon the analyzing and empirical
finding.
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ModelModelThe effects of FDI on economic growth, the
model used can be specified as follows:
g = a + b1 L + b2K + b3FDI + b4 TRD + b5HC
Where g is the real GDP.
L is economically Active Labor Force,
Kis the Domestic Capital Investment,
FDI is the Foreign Direct Investment,
TRD the Trade,
HC is Human Capital.
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Theoretical Framework
Active LaborForce (L)
Domestic
Capital (K)
Foreign Direct
Investment
(FDI)
Trade
(TRD)
Human Capital
(HC)
GDP
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Data Collection & Sampling
The data on the variables is taken from theeconomic survey of Pakistan and the World
Bank Development Indicators. And 30
observations (1980-2010) will be based on
secondary data.
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Results
We use SPSS for finding the impact of eachIndependent variable on Dependent variable.
g = a + b1 L + b2K + b3FDI + b4 TRD + b5HC
g = 5.44023 + 0.6743L + 0.3983K - 0.1612FDI + 0.0494TRD + 0.6744HC
The estimated value for R2 is 0.98 and shows
that the 98% of the total variation in GDP is
explained by these 5 independent variables.
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Impact of Active Labor Force on GDP
The coefficient of labor force is positive andsignificant, with value 0.6743 For one unit
change in labor the economic growth (GDP)
increases by 67.43%.
This positive contribution of labor towards
The economic growth. Because when labor
is more efficient then positive impact on
GDP.
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Impact of Domestic Capital on GDP
The coefficient of Domestic capital is positiveand significant and the value 0.3983 that shows
For one unit change in Domestic Capital the
Economic growth (GDP) increases by almost39.83%.
This shows the positive contribution ofDomestic Capital formation on economic
growth in Pakistan has been positive,
for 1980-2010.
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Impact of Human Capital on GDP
The coefficient of human capital is positive
and significant, with value 0.6744. For one
unit change in human capital the economicgrowth (GDP) increases by 67.44%.
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Impact of FDI on GDP
For the variable FDI, the variable of primeinterest in this study the coefficient of FDI is
-0.1612 that is also not statistically
Significant. This low value of FDI showsnegative impact on economic growth.
For one unit change in FDI the
Economic growth (GDP) decreases by
-16.12%.
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Impact of Trade on GDP
The result for the last variable trade ispositive but not significant with value
0.0494.
For one unit change in Trade (Exports) theEconomic growth (GDP) increases by
4.94%.
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Conclusion
As the results shows that FDI has notContributed much to the economic growth
in Pakistan for the time period 1980-2010,
as compared to domestic capital and labor
Therefore it is imperative for the
government to make a policy for
attracting FDI in such a way that it shouldbe more growth enhancing than growth
retarding.
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Continue
More Greenfield investment should beencouraged along with investment in large
scale manufacturing that can improve the
exports of the Pakistan as well as the
strongest argument for FDI is that it
stimulates exports for the host country.
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Suggestion
y First, the developing countries need to
be attractive to foreign investors.
y Second, the most important is the host
country environment in which foreign
investors operate must be conducive to
favorable FDI effects.
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CONTINUECONTINUE
y For FDI to be a significant contributor
to economic growth, Pakistan would do
better by focusing on improving
infrastructure, human resources,developing local entrepreneurship,
creating a stable macroeconomic
framework and conditions conducivefor productive investments to Speed up
the process of development.
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