FOREIGN DIRECT INVESTMENT, DETERMINANTS AND POLICY ANALYSIS: CASE STUDY OF PAKISTAN

The objective of this study is to understand the determinants of Foreign Direct Investment (FDI) flows and to quantify relevant policy shocks in dynamic econometric model for Pakistan economy. The study has highlighted the degree of attraction of cost related factors, investment environment factors, development strategy factors with ownership and internalization factors and other risk factors of recent FDI flows to Pakistan economy. The results show the investment environment improving factors-openness is statistically significant in short-run. While long run dynamics between FDI, openness and macro economic factors show consistency with short run results. The stable macro economic indicators, country’s risk profile followed by cost related and investment environment improving factors are real determinants to attract FDI.