Foreign Direct Investment, Exports and Large-Scale Manufacturing Sector Growth: Bound Test and ARDL Approach

Abstract

The aim of this research is to examine how foreign direct investment (FDI) contributes to the expansion of large-scale manufacturing in emerging nations such as Pakistan. The study made use of annual data from 1972 to 2023. The autoregressive distributed lag (ARDL) approach and the cointegration method known as the "bounds test" are used to determine the short-term and long-term effects of foreign direct investment on the growth of value added in large-scale manufacturing. In the meanwhile, both short- and long-term effects of exports and foreign direct investment on MAU have been substantial. Furthermore, long-term projections indicate that exports, employment, and foreign direct investment all have a positive impact on the expansion of Pakistan's large-scale manufacturing sector, while market size also has a significant negative sign for the coefficient value and employment has a negligible positive sign. According to our findings, Pakistan should think about implementing suitable, beneficial policies pertaining to exports, employment, and foreign direct investment in order to achieve high and steady growth in the large-scale manufacturing sector in the future. By critically examining and integrating current theory and research on FDI and the expansion of the large-scale manufacturing sector, as well as with the aid of advanced technology and knowledge transfer, this study advances the field of FDI and manufacturing sector grow.