FOREIGN DIRECT INVESTMENT AND EXCHANGE RATE IN RELATION TO ECONOMIC GROWTH

Abstract

§ ’urpose: Tiie purpose of this study is to investigate the impact of Exchange rate and Foreign Direct nvestment on Gross Domestic Product of Pakistan. Methodology/Design: The design of this study is a correlational and Quantitative approach has been Ised in this research. This study has also employed annual time series data over the period 1980-2012. Vhereas, foreign direct investment and exchange rate used as independent variables and gross domestic i'oduct used as dependent variable ADF Test, Ordinary least square method, co-integration test, stability nalysis and Granger causality test techniques has been used to identify relation and impact. 'indings: The result suggests that FDI and Exchange Rate have positive direct relationship with the gross omestic product in Pakistan. It is suggested for outstanding economic growth of Pakistan, policy makers id Government should concentrate on those policies that can significantly affect the growth of foreign irect investment and exchange rate in Pakistan. Therefore, business friendly environment, quality i lucation, effective exchange rate policies, political stability, power excess and specially concentration on pculture sector can generate effective results in term of foreign direct investment and exchange rate owth these growths are directly proportional to Gross domestic product Moreover, this study can also Itent or modified by using quarterly and semiannual time series data. ractical Implications: Pakistan should focus on development of human capita, technology, jobs for jskilled, business friendly environment it has observed that these areas have been influence by actuate por market rigidities, lack of rationale tax structure, lack of world class ports, airports, roads, competition, he taken in enforce contracts and average 6 to 7 hours of power shortage. Moreover, Government ought to wide Business friendly environment because it provides pace to attract vast FDI that would expected to increased economic growth.