Impediments to attract FDI in pakistan

Topics: Macroeconomics, Investment, Foreign direct investment Pages: 29 (5134 words) Published: December 28, 2014
Muhammad Ali Jinnah University, Islamabad
MBA Professional (Management Sciences)

Business Research and Report Writing

“Impediments to attract
Foreign Direct Investment (FDI) in Pakistan”

Submitted To:

Submitted By:
Sultan Masih (MM133060)
WasifHassan (MM 141019)

Impediments to attract
Foreign Direct Investment (FDI) in Pakistan


This paper studies the factors which determine foreign direct investment inflow in any country as well as the elements which affect FDI inflows in Pakistan We explored how trade openness, exchange rate stability, inflation, law and order situation and political risks effect foreign investors decisions and what factors affect their decisions and to determine the level of FDI inflow during political stable as well as political in-stable economy

We examined the effect of political instability on FDI inflows in Pakistan. We analyzed number of factors like Terrorist activities, casualties / fatalities in result of terrorism, inflation (CPI), currency depreciation, export promoted regimes that can affect FDI inflows in Pakistan.

We used secondary data to generate our results, our findings indicate that increase in Export tends to increase FDI; hence, export has a major and significant impact on FDI inflows. Our findings demonstrate strong correlation between casualties and FDI.

Our results indicate significant impact of political instability on Foreign Direct Investment inflows in Pakistan. On the basis of our results, we concluded that almost all aforementioned variables significantly affect FDI; results also indicate fitness of our selected model. Moreover, our results are generally consistent with the findings of other researchers

Key Words: Foreign Direct Investment, Trade Openness, GDP, Inflation, Currency Depreciation, Political Instability, Terrorism in Pakistan

Foreign Direct Investment (FDI) plays a dynamic role in the growth of economy. Due to globalization of business activities FDI has become the major concern of developing countries. Investors mostly from developed economies are exploring new emerging markets to expand their business activities because of relatively tough competition and saturation in local markets. In respect of world FDI outflow, rising markets like China and India are the hot destinations.

Why FDI?
Being a developing economy, Pakistan is also a part of this race. Major focus of government is to attract foreign direct investment in country by creating soft image of Pakistan and by marketing lucrative investment opportunities in country. GOP reformed and liberalized investment policies to suit investor requirements. But in recent past political turmoil in the country effects on FDI inflows very negatively.

Research Questions?
What are the determinants of foreign direct investment inflow in country? What are the elements which are affecting FDI inflows in country and how they affect decisions of potential foreign investors?

The main purpose of our research study is to analyze the factors which are the determinants of FDI inflows in any country. We studied literature to identify all those aspects which are the prime reasons for potential investors to invest in any country. Secondly, our research study also analyzed the factors effecting capital inflows in the country and impediments to attract FDI in any country. It has been demonstrated by number of researchers that political and macroeconomic stability both play important role to attract foreign investment in any country. They also find that multinational enterprises prefer countries that are more open to trade and with fewer restrictions on FDI as the destinations of their investment. Number of other researchers also conducts studies to identify the factors that affect FDI inflows like conflicts with neighboring countries, changing...

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Almas, Addison, Heshmati, & Tony. (2003). The new global determinants of FDI flows to developing countries: The importance of ICT and democratization.
Azemar, C., Desborder, R., (2010), Short-Run Strategies for Attracting Foreign Direct Investment, SIRE Discussion Paper
Brada, J.C., Kutan, A.M., Yigit, T.M
Erdal, F., & Tatoglu, E. (2002). Locational Determinants Of Foreign Direct Investment In An Emerging Market Economy: Evidence From Turkey. Multinational Business Review, 10 (1).
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Groh, A.P., Wich, M., (November 2009) A composite measure to determine a Host Country 's attractiveness for FDI
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Mughal, M. M., Akram, M., (January 2011), Does market size affect FDI? The Case of Pakistan, Interdisciplinary Journal of Contemporary Research in Business
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Trading Economics (November 2012)
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