The Impact of GDP and FDI on KSE100 Index: in the context of Pakistan

Abstract

In the context of Pakistan, this study investigates the influence of Gross Domestic Product (GDP) and Foreign Direct Investment (FDI) on the Karachi Stock Exchange 100 Index (KSE-100). The primary objective is to examine the impact of variations in GDP and FDI on the performance of the KSE-100, as well as the interplay between these variables, by concentrating on annual data from 2005 to 2024. The research assesses the long-term statistical relationship among these macroeconomic indicators through the use of quantitative methods, particularly regression analysis. In order to improve the model's reliability, control variables such as the Consumer Price Index (CPI) and Lending Interest Rate were also incorporated. The results indicate that the KSE-100 Index is significantly and positively influenced by both GDP and FDI. The stock market index experiences corresponding benefits in response to increases in GDP and FDI, while CPI also has a positive impact. In contrast, the index is adversely affected by an increase in the Lending Interest Rate. The model's robust explanatory power is further supported by the high R² value. The study emphasizes the critical role of macroeconomic stability and investment inflows in the acceleration of Pakistan's stock market and overall economic development.