Determinants of FDI inflows to Pakistan (1970-2002)

This paper summarises the findings of causality and long-term relationship between Foreign Dirct Investment (FDI), economic growth and other socio-political determinants. Although a considerable literature gives the evidence of relationship between FDI and economic growth. There is a need for a detailed examination of socio-political determinants of FDI. This paper considers economic growth, exchange rate and level of interest rates, unemployment, and political stability as determinants of the level of FDI inflows for Pakistan over the period 1970-2002. Almost all variables are found to have the theoretically expected signs with two-way causality relationship. The present study also estimates an error correction model by ordinary least squares, based on cointegrating VAR (2).