Impact of Macroeconomic Variables on Foreign Direct Investment in Pakistan: Time Series Analysis for The Period (1990 – 2015)

Aftab Khan, Naeem Ur Rehman


In the modern world no one can deny the importance of the foreign direct
investment (FDI) due to diversity in demand for goods, no country can be self-sufficient in production or technological growth. Pakistan is also one of these countries which need continuous inflow of FDI in order to maintain its economic growth rate. The most significant determinants of foreign direct investment in Pakistan are exchange rate depreciation, inflation rate, unemployment rate, and average taxes imposed on the economy. Time series data from the year 1990 to 2015 was used to analyze the relationship between the FDI and the chosen independent variables. For the purpose multiple regression was used to statistically examine the relationships amongst the variables. The main findings of the study were unemployment has extremely strong relationship with FDI inflows, if unemployment increases by one percent, the FDI will increase by 32 percent. Average tax rate has positive but insignificance relationship. Similarly, an insignificant relationship was observed between inflation and FDI during
the study period. Thus, the study suggests that the government should keep strict vigilance on the exchange rate depreciation, unemployment rates, taxes imposed on the economy.

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ISSN 2521 – 5515