Spillover Effect of Foreign Direct Investment on Economic Growth in Pakistan

Abstract

Foreign direct investment (FDI) is often seen as an important catalyst for economic growth in the developing countries. It affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries. The main purpose of the study is to investigate the impact of FDI on economic growth in Pakistan, for the period 1980-2006. The relationship between FDI and economic growth is analyzed by using the production function based on the endogenous growth theory; other variables that affect economic growth such as trade, domestic capital and, labour are also used. The results of the study show a negative and statistically insignificant relation between the GDP and FDI Inflows in Pakistan. Policy recommendations are suggested in the light of the results obtained, regarding the FDI in Pakistan