Does Foreign Direct Investment Accelerate the Economic Growth of Pakistan: CPEC Perspective in Pakistan Economy

Abstract

This study examined the empirical exercise of the impact of foreign direct investment on economic growth in Pakistan. This research covered the period of 1990-2024. Gross domestic product per capita (economic growth) is taken as the dependent variable, while foreign direct investment, gross fixed capital formation (domestic investment), inflation, and trade openness are taken as independent variables. This study contains secondary data that is taken from the World Bank Database (WDI). For empirical estimations ADF test is used to check the stationarity of the data. The F-Bound test approach and the ARDL model are used to find the short-run and long-run relationship among the variables. The findings of the study depict that foreign direct investment and domestic investment positive relationship with economic growth.  In this study, trade openness shows an insignificant effect until the imports remain positive. For policy implications, it is recommended that foreign direct investment be attracted to Pakistan for the country's sustainable development. The State Bank should focus on monetary policy to enhance the development of the country.