IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN PAKISTAN

The present study was carried out to assess the impact of FDI (foreign direct investment) on economic growth of Pakistan. The basic economic indicators (FDI, GDP, CPI) were used to examine the relative growth using time series technique for 20 years of quarterly data i.e., 1997Q3 to 2017Q4). The ADF test was applied to check the stationarity of time series using its three variants models i.e., model without constant and trend; model with constant and no trend; and model with constant and trend. All the time series were reported to be non-stationary at levels, however, became stationary after taking second dif erence. The summary statistics revealed that FDI, GDP and CPI during 1997 and 2017 remained in the range of US$ 50.605 and 116.788 billion, 11.767 and 701.300 billion, 37.525 and 154.830; reflecting exceptional variability. The GDP growth was higher in 2005 (8.958%), 2016 (12.44%) and 2017 (17.75%); and least in 2009 (0.361%) and 2015 (0.12 %). The CPI in 1997 (37.29) showed constant increase in the following years and highest (156.9) was in the 2017. The estimated CPI in Pakistan may stand at 250.68 in coming 12 months' time; while in long term, the projected CPI trend may be around 263.00 points up to 2020.The Granger Causality test was taken to know whether the variables granger cause or vice versa. The results showed that FDI does not granger cause CPI at any leg value (since its effects are not significant) and the effects of CPI on FDI are not significant at first lag, however, these effects become significant of second and third lags respectively. VAR (2) model was selected on the basis of SBIC criterion. The forecast clearly indicates fluctuation in FDI, GDP and CPI and finally after 5-6 quarters, all the forecasts were converged to unconditional mean of the data set.