Foreign Direct Investment

1674 Words7 Pages
Foreign Direct Investment, or FDI, is a type of investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor” (economy watch). The determinants of foreign direct investment may be the socio-economic, financial and the cultural factors which usually have positive and negative effect on the foreign direct investment. The risk is attached to the determinants of foreign direct investment. This paper examines the major determinants of foreign direct investment exchange rate, market size, political instability, infrastructure, openness to market and military rule. Data constraints in Pakistan some determinants consider to be the inefficient.
…show more content…
The main determinants are openness to trade and political stability in the study. The results show that FDI stimulates the economic growth but growth does not attract the foreign direct investment. In fact the openness trade and political stability are the significant determinants.

This study is done Aqeel and Nishat (2004).They analysis FDI flow is well documented in literature for the both developing and developed countries .The main determinants are used income level, infrastructure political and macro stability. The co-integration and error correction technique is applied to check the stationarity. The data is collected annual from 1961—2003 to SBP from the assets and liabilities and foreign investment and exchange rate is from international finance statistic published by Federal Bereau Statistics. The study considers exchange rate, tax rate, variables if they explain the inflow of foreign direct investment. Also included are wages and GDP to check the test the relative demand for labor and market size. All variables indicated correct signs and are statistically significant except for wage rate. The study clearly emphasizes the role of these policy variables in attracting FDI and determining its growth in both short and long run in Pakistan. The study shows that FDI has positive impact in Pakistan.

One of the studies is done by the Dar et al (2003). This study summaries the long term relationship between FDI and Economic Growth. It gives
Get Access