THE IMPACT OF FOREIGN CAPITAL INFLOW ON ECONOMIC GROWTH IN PAKISTAN: A TIME SERIES ANALYSIS

Abstract

This research analyses how economic growth (Real gross domestic product) responds to the symmetric as well as asymmetric inflow of foreign capital (Foreign Direct Investment and Official Development Assistance) in Pakistan. For this purpose, data has been selected for the FY 1980-81 to 2021-22 and the data sources are World Bank Development Indicators (WDI) and the various issues of Economic survey of Pakistan. The net inflow of FDI and ODA received is deemed as the foreign capital inflows. The results revealed the existence of cointegration between the foreign capital inflows and real gross domestic product in Pakistan. Moreover, comparing component wise symmetric impact of FDI is positive and growth inducing however, while the impact of ODA is contrary to the FDI. The asymmetrical impact reveals that as compared to the inflows of foreign capital any reduction in foreign capital effect the economy more adversely. In this scenario government and policy makers of Pakistan should adopt Investors friendly policies to fascinate more investors as compared to depend on ODA.

Keywords: Economic Growth, Foreign Capital Inflow, Foreign Direct Investment