SOME NEW EVIDENCE ON DETERMINANTS OF FOREIGN DIRECT INVESTMENT: A CASE STUDY OF PAKISTAN

Foreign direct investment (FDI) is often considered as an important tool of economic growth in developing countries. It affects economic growth by stimulating domestic investment, increasing human capital formation and facilitating the technology transfer. After 1980s importance of FDI increased due to creation of new markets, advancement of technologies and development of efficient production and sales globally. We have tested two regimes data: democratic (1990-1999) and military (2000-2007). The result obtained suggests that domestic investment is independent of the level of FDI inflows. In other words, it implies that a change in domestic investment is not influenced by FDI inflows. However, the Granger causality findings suggest that the current government expenditures influence the amount of FDI in future. In Pakistan trade openness is negatively associated with FDI.