Causality Interconnection between Foreign Direct Investment and Economic Growth of Pakistan. An Investigation Using Granger Causality.

Abstract

In the current era of globalization, every foreign indicator plays an integral part in every nation's economic development. FDI, GDP, imports, exports, and exchange rates are always given topmost superiority in emerging economies like Pakistan.  The primary goal of the research is to check the association between Foreign Direct Investment, Gross Domestic Product, Imports, Exports, Per Capita Income, and Exchange Rate in Pakistan. Secondary information was gathered from 2001 to 2022, and data was composed from the World Bank, Pakistan Bureau of Statistics, and State Bank of Pakistan websites, which used the most authentic sources of information.  The outcomes of the study are retrieved through Descriptive statistics, Correlation matrix, OLS, Unit roots, and VAR Granger Causality using EViews software. GDP is the dependent variable, while FDI, Imports, Exports, Per capita Income, and Exchange Rate are independent variables. Results revealed that FDI negatively correlated to GDP while other variables positively correlated. Moreover, OLS exposed that FDI, Exports, Per Capita Income and Exchange Rate positively impact GDP, but Imports harm GDP. Furthermore, granger causality results indicate that Economic Growth leads to FDI. Practically, this study will provide inside knowledge related to investment to investors, Govt, and relevant authorities; lastly, the study recommended that the administration should focus on attracting potential foreign investment players, which will boost the country's exports, cut down on imports, uplift the living standard of people by increasing per capita income, and embark on the country's economic growth.  Foreign direct investment enables the hosting countries to create more employment opportunities and introduce modern manufacturing and production procedures.

Key-Words: FDI, GDP, Unit Root, Granger Causality, Infrastructure