The determinants of foreign direct investment in Pakistan: An empirical investigation

Abstract

This paper empirically investigates the determinants of foreign direct investment (FDI) in Pakistan, with special emphasis on the public policy instruments that can be used to accelerate FDI-related activities. Using time series data from 1960-61 to 1999-2000, it is observed that the outcomes are more consistent with the hypotheses. The application of the Ordinary Least Squares (OLS) Technique and the Johansen-Juselius Cointegration technique suggests that FDI flows in Pakistan have a long-run relationship with well-known determining factors like market size, the cost of capital, tariff, infrastructural provisions and political stability. However, a restrictive role in the short-run dynamics is questionable and needs further inquiry for policy formulation. Highly significant co-efficients of the selected exogenous variables best fit the model for FDI determinants.