The short-run and long-run relationship between foreign direct investment, trade openness, workers’ remittances, foreign economic assistance and human capital on real gross domestic product for Pakistan

Economic growth is an essential factor for a country’s development. Pakistan is a politically unstable country which has been witnessing slow economic growth and rampant corruption. The country’s population has a low standard of living and poor education as well as healthcare system. Key economic indicators show that Pakistan has not been able to register strong Real Gross Domestic Product (“RGDP”) growth and attract high levels of Foreign Direct Investment (“FDI”). The country’s Trade Openness (“TO”) is high, however it has been suffering from an on-going trade deficit. Although, large inflows from Foreign Economic Assistance (“FEA”) and Workers’ Remittances (“WR”) were received, and the population is on a growing trend, yet it was still unable to register strong economic growth. Primary aim of this study is to address the gap in the existing literature of Pakistan arising from the conflicting and inconclusive results. The study also assesses whether the government’s economic policies for growth will be effective and their potential implications. This study has investigated Pakistan’s annual time series data from 1974 to 2017 with 44 observations via Auto Regressive Distributed Lag Test and Error Correction Model. The results showed that WR have a short-run negative and long-run positive relationship to RGDP. FDI and FEA have a short-run positive relationship with RGDP, while Urban Population Growth Rate as a proxy for quantitative Human Capital factor i.e. population growth, has a negative relationship in the short-run and long-run to RGDP. TO has no short-run and long-run relationship with RGDP. This study recommended that Pakistan should ensure a stable macroeconomic environment and chart strategic policies to attract higher FDI, and direct FEA to large multiplier effect projects. In addition, the government should provide attractive investment opportunities for WR to be redirected from consumption to savings and investments. Furthermore, it is vital for the government to improve domestic education standard which will slowdown population growth and reduce burden on the existing economic resources, as well as lead to higher productivity