Foreign Direct Investment as a Growth Engine: Evidence from Pakistan and India

Abstract

Foreign direct investment significantly contributes to the economic growth, specifically in developing countries, The study examines the impact of FDI on the economic growth of Pakistan and India over the past two decades i-e (2004-2023), the data we’ve used for this study is accessed through world development indicators (WDI). We’ve applied random effects model, to examine the relationship between foreign direct investment (FDI), and GDP growth while controlling for economic factor like inflation and political stability. The findings of our study indicate how FDI help both the countries grow, considering their similarities and differences. This study emphasizes the crucial role of Foreign Direct Investment (FDI) in enhancing Economic growth in developing South Asian countries like Pakistan and India. While FDI positively influence the Economic growth, but it alone cannot drive growth-it is dependent upon several factors including Political Stability, Human capital, Technological Advancements and consistent policies within the country. While Pakistan suffered because of its weak structural issues India took most benefit from FDI because of its stable government and clear investment policies and rules. To maximize the impact of FDI, Pakistan must improve its investment climate and economic conditions whereas, India should focus on FDI quality and regional balance.