Exploring the Dual Impact of Technological Innovation and Foreign Direct Investment on Economic Growth in Pakistan

Abstract

Purpose. This study investigates the mutually reinforcing relationship between technological innovation and foreign direct investment (FDI) and their combined contribution to economic growth in Pakistan over a 23-year period. Although technological innovation and FDI have each been studied extensively as independent determinants of growth, their joint effect on an economy such as Pakistan's remains comparatively underexamined. As Pakistan continues to pursue alignment with global development trends, understanding this dynamic has become increasingly important.

Design/Methodology/Approach. Using annual time-series data spanning 2001 to 2023, the study applies unit root testing, correlation analysis, and Ordinary Least Squares (OLS) regression to examine the relationships among the variables of interest. Economic growth is proxied by GDP per capita, FDI by annual net inflows in current US dollars, and technological innovation by non-resident patent applications. All data were sourced from the World Bank's World Development Indicators (WDI).

Findings. The regression results confirm a statistically significant and positive relationship between both FDI and technological innovation, and economic growth. Specifically, a one-unit increase in FDI is associated with a 4.31-unit increase in GDP per capita, while a one-unit increase in technological innovation corresponds to a 0.11-unit increase in GDP per capita, holding other factors constant. These findings lend empirical support to investment-led growth theory and endogenous growth theory alike, underscoring the complementary roles that innovation and global capital flows play in shaping Pakistan's growth trajectory.

Keywords: technological innovation, foreign direct investment, economic growth, Pakistan, sustainable development