The Role of Foreign Direct Investment in Pakistan’s Economic Growth and Its Impact on Employment

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue XI, November 2020 | ISSN 2454–6186

The Role of Foreign Direct Investment in Pakistan’s Economic Growth and Its Impact on Employment

Bushra Sarwar, Lefen Lin
College of Finance, Nanjing Agricultural University, Nanjing 210095, China

ABSTRACT
Foreign direct investment (FDI) plays a significant role in promoting the economic growth and employment level of a country. The current study was conducted to analyze the impact of FDI on economic growth and employment level of Pakistan. Time series and secondary data were used ranging from 1990 to 2017. The data of Gross domestic product (GDP) and FDI inflow was collected from the World development data indicator (WDI), while data on employment (EMP) from international labor organization (ILO) estimates. ADF test and AR root test methods were used for FDI, GDP, and EMP.Using the regression results of the VAR model, variable relations were explained among each other with their lag values. The results of GDP L1 value show that GDP positively affects FDI, FDI LI shows that FDI positively affects FDI, and EMP L1 shows that employment positively affects FDI.Using GDP as a dependent variable, the result of FDI L2 value shows that FDI negatively affects GDP, EMP L1 value shows, employment positively affects GDP, and GDP L1 value shows that GDP positively affects GDP.Using EMP as the dependent variable, the results of GDP L1 value showsa positive effect on employment, FDI L1 value shows that FDI hasa positive effect on employment, and EMP LI value showsthat employment hasa positive effect on employment. Taking together all results, it has been predicted that FDI plays a positive role in enhancing economic growth and employment in Pakistan.
Keywords: FDI, Economic Growth, Employment, Pakistan
1. Introduction
Foreign direct investment is an investment made to acquire a lasting or long-term interest in enterprises, operating outside the economy of the investor. Foreign Direct Investment has emerged as the most significant source of external resource flows to developing countries over the 1990s and has become a major element of capital development in the developing countries

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