Impact of Foreign Direct Investment on Economic Growth of Pakistan (1980-2008)

Abstract

It has been increasingly recognized that growing foreign direct investment (FDI) inflows can contribute to economic development and promise a variety of potential benefits to poor country recipients. Due to potential role foreign direct investment can play in accelerating growth and economic transformation. Many developing countries seek such investment to accelerate their development efforts. Consequently foreign direct investment has become an important source of private external finance for developing countries.

Most of the studies indicate that countries, which offer safe and profitable investment opportunities successfully, attract FDI. It has been observed that many developing countries are experiencing rapid growth and consequently development by opening up their economies to FDI under outward oriented policies. Such policies create a climate favorable for FDI inflow, which bring with them modern managerial, production and marketing technologies all of which are necessary for enhances in productivity and efficiency of firms at a national level.

Foreign direct investment can take place in two ways, either through direct entry of foreign firms or the acquisition of existing domestic firms. It can also increase growth in two ways. The investment increases total investment by attracting higher level of domestic investment. Also through interaction of the more advanced technology with the host country’s human capital, foreign direct investment is more productive than domestic investment.