Impact of Fdi on Economic Growth in Pakistan (1971-2007)
Chapter 1
1. Introduction
Foreign direct investment (FDI) has been recognized as an important resource for economic development. Many people argue that the flows of FDI could fill the gap between desired investments and domestically mobilized saving. In recent decades under the changing modes of international transactions and cross-border mobilization of production factors, foreign direct investment (FDI) attracted great attention not only in developing countries but also in developed countries. The open FDI regime forced the host countries to adopt greater deregulation policies and reliance on market forces in their economies. Most developing countries such as Pakistan now considered FDI as the major external source of funding to meet obligations of resources gap and economic growth, however it is difficult to measure economic effects with precision. Nevertheless, various empirical studies showed a significant role of inward FDI in economic growth of the developing countries, through its contribution in human resources, capital formation, enhancing of organizational and managerial skills, and transfer of technology, promoting exports and imports and the network effect of marketing. The other positive spillover effect was that the presence of foreign firm helps expand infrastructure facilities, which makes it easier and profitable for local firms to crowd-in.
Many factors made Pakistan an attractive place for foreign investments. Firstly, the Pakistanis economy showed responsiveness and potential capacity to meet exogenous shocks and minimize risks in response to various major regional and global events, for in Afghanistan. 9/11, 2001 which placed Pakistan in the frontline again and aid from Washington began to flow once again. The subsequent events included: Afghanistan war; the attack on India’s Parliament (2001) that led to mobilization of Indian troops, the 2003 war in Iraq, Karachi Stock Exchange (KSE) crisis and severe earthquake (2005).attacks on Bombay
1. Introduction
Foreign direct investment (FDI) has been recognized as an important resource for economic development. Many people argue that the flows of FDI could fill the gap between desired investments and domestically mobilized saving. In recent decades under the changing modes of international transactions and cross-border mobilization of production factors, foreign direct investment (FDI) attracted great attention not only in developing countries but also in developed countries. The open FDI regime forced the host countries to adopt greater deregulation policies and reliance on market forces in their economies. Most developing countries such as Pakistan now considered FDI as the major external source of funding to meet obligations of resources gap and economic growth, however it is difficult to measure economic effects with precision. Nevertheless, various empirical studies showed a significant role of inward FDI in economic growth of the developing countries, through its contribution in human resources, capital formation, enhancing of organizational and managerial skills, and transfer of technology, promoting exports and imports and the network effect of marketing. The other positive spillover effect was that the presence of foreign firm helps expand infrastructure facilities, which makes it easier and profitable for local firms to crowd-in.
Many factors made Pakistan an attractive place for foreign investments. Firstly, the Pakistanis economy showed responsiveness and potential capacity to meet exogenous shocks and minimize risks in response to various major regional and global events, for in Afghanistan. 9/11, 2001 which placed Pakistan in the frontline again and aid from Washington began to flow once again. The subsequent events included: Afghanistan war; the attack on India’s Parliament (2001) that led to mobilization of Indian troops, the 2003 war in Iraq, Karachi Stock Exchange (KSE) crisis and severe earthquake (2005).attacks on Bombay
References: Abdul Khaliq (2007) “Foreign direct investment and economic growth: empirical evidence from sectoral data in Indonesia” Akhtar, M, Hanif (1995) “The determinants of foreign direct investment in Pakistan – An economic analysis” Lahore journal of economics, Vol. 5, no, 1 Atique Zeshan et al (2004) “The impact of FDI on economic growth under foreign trade regimes,A case study of Pakistan” Fortanier Fabienne(2004) “Foreign direct investment and host country economic growth: Does the investor’s country of origin play a role?” F.N.Fortanier@uva.nl). Falki Nuzhat (2009) “Impact of foreign direct investment on economic growth in Pakistan” Gabriel (2009) Serbu, 110-126“FDI role in promoting economic growth –An international review” Ozturk et al (2007) “Foreign Direct Investment and Growth: An Empirical Investigation Based on Cross-Country Comparison” MPRA Paper No. 9636. Yousaf mehar et al (2008) “Economic evalution of foreign direct investment in Pakistan” Pakistan Economic and Social Review Volume 46, No. 1 (Summer 2008), pp. 37-56