Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd
Upload
3K views

Problem Statement

This document discusses the relationship between foreign direct investment (FDI) and economic growth. It presents the research question of whether FDI affects economic growth in Pakistan. The objective is to examine the impact of FDI on Pakistan's economic growth from 2000-2015. The literature review summarizes numerous past studies that have examined the relationship between FDI and economic growth with mixed findings depending on the country studied. Past studies on Pakistan have found both positive and negative effects of FDI on its economic growth.

Uploaded by

Waqas Khan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
3K views

Problem Statement

This document discusses the relationship between foreign direct investment (FDI) and economic growth. It presents the research question of whether FDI affects economic growth in Pakistan. The objective is to examine the impact of FDI on Pakistan's economic growth from 2000-2015. The literature review summarizes numerous past studies that have examined the relationship between FDI and economic growth with mixed findings depending on the country studied. Past studies on Pakistan have found both positive and negative effects of FDI on its economic growth.

Uploaded by

Waqas Khan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Problem Statement

Foreign direct investment, or FDI, is investment, a controlling ownership, of a foreign


company in a country other than the one it is based in. It affects the home country inevitably.
But economists do not have a general agreement as to which of its effects are more: positive
or negative. Some term it favorable for economic growth while others disagree and stand in
its opposition. The advocates believe it creates employment opportunities, impart technical
skills to the residents, and, above all, increases the GDP, which we call economic growth, of
the host country. On the other hand, it is said that through this FDI these investors manipulate
scarce productive resources of the host country; though it has some positive effects, yet they
are minimal as compared with the negative ones. Nonetheless, its effects desirability vary
from country to country. In case of Pakistan, it is needed because it can play a significant role
in economic growth.
Research Question
The main question of this study is whether FDI affects economic growth in case of
Pakistan.
Hypothesis
H0: FDI does not affect economic growth in case of Pakistan.
H1: FDI affect economic growth in case of Pakistan.
Objective
The main objective of this study is to examine the impact of FDI on economic growth in
case of Pakistan over the period 2000-2015.
Literature Review
Innumerable researches have been carried out to study the relationship between FDI and
economic growth. Conclusions of these researches vary from country to country.
Kurtishi-Kastrati (2013) studied the impact of FDI on economic growth with an overview
of the main theories of FDI and empirical research. The researcher explained the main trends
in FDI and employed OLI-Framework in this study. The researcher explored many other
factors that incite foreign companies to invest in a particular country. The researcher found
that there is no generally accepted theory of the determinants of FDI and its effects on
economic growth and international trade.
Alfaro (2003) researched on FDI and growth and importance of the foreign sector. The
researcher empirically analyzed cross-country data from 1981-1999 and found that total FDI
had an ambiguous effect on the growth of a country. The results showed that the effects of
FDI changes from sector to sector. They also asserted that FDI in the primary sector had a
negative effect on growth, while its effect in manufacturing had a positive effect on growth.
In another study on the topic under consideration, Fortanier (2007) carried out panel data
analysis and confirmed that the influence of FDI on the economic growth of the host country
depended on the country of origin, and the effects of the country of origin varied with the
characteristics of the host country.

Brenner (2014) empirically analyzed different effects of FDI on economic growth. GMM
panel regression is used by the researcher to find that in less developed countries, the
relationship is rather negative, while it may change for developed countries from time to
time.
Tintin (2012) carried out empirical study of this kind. The researcher used panel least
squares method with fixed effects. The results showed that FDI triggered economic growth in
developed, developing, and less developed countries.
Katerina et al. (2004) analyzed such relationship in case of transition economies. By
Employing Bayesian analysis, they found that FDI does not exhibit any significant
relationship with economic growth in case of transition economies.
Melnyk et al. (2014) had a case study of post communism transition economies regarding
the same topic. They used neo-classical growth theory model and found that FDI does
influence economic growth positively in former Camecon transitional and developing
economies.
Koojaroenprasit (2012) conducted a similar study in case of South Korea. The researcher
utilized endogenous growth theory and empirical literature growth models. FDI, domestic
investment, employment level, exports, and human capital were taken as endogenous
variables for economic growth. The study concluded that human capital, level of
employment, and exports are positive correlated with economic growth, while no satisfactory
relationship existed between domestic investment and economic growth. Finally, the results
indicated that there was a strong and positive relation between FDI and economic growth.
LEITO and Rasekhi (2013) researched the same topic in case of Portugal. Panel data
approach is used by them. The result showed that Portugal and its trading allies were in a
converging position; that growth is in inverse relationship with inflation and the initial per
capita income; that there is positive relationship for FDI and growth in Portugal.
Ahmad and Hamdani (2003) carried out research on developing countries. The analytical
framework of the study was derived from classical work. They both found that domestic
private investment has more favorable impact on growth of the host economy than FDI.
Maliwa and Nyambe (2015) investigated this relationship in Zambia. Unit root test,
Johansen co-integration test, and Granger causality procedure were used. Data from World
Bank`s development indicators was employed for 1980-2012. They found that FDI had no
significant effect on economic growth because of less suitable policies. The researchers
recommended that unless government reforms its existing policies, economic growth will
remain unaffected from the level of FDI.
Louzi and Abadi (2011) studied this relationship in case of Jordan. Using time series data,
they employed econometric framework of co-integration and error correction and found that
FDI has no independent impact on economic growth in case of Jorden.
Oluwafolakemi et al. (2014) investigated the case of Nigeria for such relationship. They
used OLS framework in the study and found that there was a healthy positive relationship
between FDI and economic growth.

Saqib et al. analyzed the said relationship in case of Pakistan. The methodology included
ordinary least squares method and Augmented Dickey Fuller Test to ascertain the cointegration of the variables. The findings of the research shows negative impact of FDI on the
economy growth, which, on the other hand, is positively affected by domestic investment.

References
Kurtishi-Kastrati, S. (2013), Impact of FDI on Economic Growth: An Overview of the Main
Theories of FDI and Empirical Research, European Scientific Journal, 9(7), pp 56-77.
Alfaro, L. (2003), Foreign Direct Investment and Growth: Does the Sector Matter?
Fortanier, F. (2007), Foreign Direct Investment and Host Country Economic Growth: Does
the
Investors Country of Origin Play a Role?, Transnational Corporations, 16(2), 41-76.
Brenner, T. (2014), The Impact of Foreign Direct Investment on Economic Growth An
Empirical
Analysis of Different Effects in Less and More Developed Countries.
Tintin, C. (2012), Does Foreign Direct Investment Spur Economic Growth: A Comparative
Study.
LEITO, N, C. & Rasekhi, S. (2013), The Impact of Foreign Direct Investment on Economic
Growth: The Portuguese Experience, Theoretical and Applied Economics, 20(1), pp
51-62.
Koojaroenprasit, S. (2012), The Impact of Foreign Direct Investment on Economic Growth:
A
Case Study of South Korea, International Journal of Business and Social Science,
3(21), pp
8-19.
Maliwa, E. & Nyambe, J, M. (2015), Investigating the Impact of FDI on Economic Growth in
Zambia: 1980 2012, European Journal of Business, Economics and Accountancy,
3(3),
41-50.
Louzi, B, M. & Abadi, A. (2011), The Impact of Foreign Direct Investment on Economic
Growth
in Jordan, IJRRAS, 8(2), pp 253-258.

Oluwafolakemi, F, O., Olowe, S, O. & Adeleke, K, M. (2014), Impact of Foreign Direct

Investment on Nigeria Economic Growth, International Journal of Academic Research


in
Business and Social Sciences, 4(8), pp 234-242.
Ahmad, E. & Hamdani, A. (2003), The role of Foreign Direct Investment in Economic
Growth,
Pakistan Economic and Social Review, 41(1&2), pp 29-43.
Katerina, L., John, P. & Athanosias, V, (2004), Foreign Direct Investment and Economic
Growth
In Transition Economies, South Eastern Europe Journal of Economics, Vol 1, pp 97110.

Saqib, N., Masnoon, M. & Rafique, N. (2013), Impact of Foreign Direct Investment on
Economic
Growth of Pakistan, Advances in Management & Applied Economics, 3(1), pp 35-45.
Melnyk, L., Kubatko, O. & Pysarenko, S. (2014), The Impact of Foreign Direct Investment
on
Economic Growth: Case of Post Communism Transition Economies, 12(1), pp 17-24.

You might also like