Impact of Foreign Direct Investment On Economic Growth of Pakistan-An ARDL-ECM Approach

This study investigates an impact of Foreign Direct Investment (FDI) on Gross Domestic Production (GDP) of Pakistan over the period 1966-2014. I apply Autoregressive Distributed Lag- Error Correction Model (ARDL-ECM) technique to find long run effects and short run effects simultaneously. The FDI has a significant positive impact on the GDP growth of Pakistan both in long-term and in short-term. Moreover, the ECM coefficient suggests a convergence to the equilibrium path. Other factors such as the inflation and the population also show significant effects on the GDP in the long run. Finally, the gross capital formation and the trade have no significant role to explain the variation in the economic growth of Pakistan