Determinants of Inflow of Foreign Direct Investment (FDI) into Pakistan

The objective of this research paper is to examine the effects of various factors like violence, stock exchange performance and exchange rate on Foreign Direct Investment (FDI) inflow into Pakistan. For econometric analysis monthly secondary data ranging from 2003 to 2011 has been used. Regression and correlation are used as analytical tools for the empirical estimation. In addition, for time series data analysis Augmented Dickey Fuller test and Phillips-Perron test have been used. This study finds that the violence in the country and Karachi Stock Exchange- 100 Index are statistically significant factors with a positive sign. Moreover, the exchange rate has also been found to be statistically significant factor with negative sign. This study uses monthly time series data from 2003-2001, which enables a deeper understanding of FDI inflow in Pakistan. Results suggest that in order to enhance FDI inflow to a desirable level, the government should ensure the existence of a peaceful environment, efficient capital markets and a stable exchange rate in the country.