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1 Chapter 1 : Effect of Foreign Direct Investment on Economic Growth in Nigeria :: Science Publishing Group Several theories have been advanced on the beneficial effect of foreign direct investment (FDI) on economic growth. However, mixed empirical findings have resulted in a long-standing debate. Volume 2, Issue 2, November, Pages: To cite this article: August 13, ; Accepted: November 19, ; Published: December 20, Abstract: While some researchers suggest a positive effect, others found a negative effect. It is against this backdrop that this study examined the effect of foreign direct investment on economic growth in Nigeria. The study covered the period to The study used secondary data derived from the Central Bank of Nigeria statistical bulletin and publications of the National Bureau of Statistics. The study employed multiple regression technique and Gretl 1. The results showed that foreign direct investment has a positive and significant effect on gross domestic product. It was also found that exchange rate has a positive but not significant effect on gross domestic product. Thus, the study concluded that foreign direct investment has a positive effect on economic growth in Nigeria as opposed to the findings and belief of some researchers and other stakeholders that foreign direct investment has a negative effect on the growth of the economy. It was recommended that government should improve the state of infrastructures in the country in order to encourage meaningful investments in the economy. Data Presentation, Result and Discussion 5. In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how and enhances linkages with local firms, which can help to boost growth in an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies Melnyk, Kubatko and Pysarenko, Foreign Development Investors are mostly invited by transition and developing countries in a hope that through this international activity, the positive experience from developed countries will come to their domestic economies Silvio, and Ariel, Thus, as foreign direct investment flow increases in an economy, export volume of that economy increases Pulatova, For a developing country like Nigeria, foreign direct investment is considered as a way of transferring technology and capital from other developed and even developing countries to the domestic economy. Melnyk, Kubatko and Pysarenko believe that when foreign direct investment comes to a domestic country in specific business, that firm receives a competitive advantage due to the usage of new knowledge, experience, ways of production and management. Adding that current successful economic growth of developing countries is explained by "catch up effect" in technological development with developed countries. Furthermore, FDI raises employment by either creating new jobs directly or using local inputs, thus, creating more jobs indirectly. According to Koojaroenprasit, FDI is an important factor which contributes to economic growth through technology transfer. Capital accumulation and augmentation of human capital through education, trainings, and new managements are also prescribed to FDI inflows Buckley, Clegg, Wang and Cross, Muntah, Khan, Haider and Ahmad opined that foreign direct investment contributes significantly in the human resource development, capital formation and organization and managerial skills of the people in an economy. The advantage for investors is that investing in developing countries may bring higher gain and profits. Also more productive foreign firms stimulate industry competition, which is often useful for domestic firms. Thus as suggested by Blomstrom and Kokko, domestic firms with foreign investment have high-quality output, driving up production standards in other competitive domestic firms. The presence of foreign firms in the economy with their superior endowments of technology and management skills will expose local firms to fierce competition Chen, Chang and Zhang, Local firms may also be under pressure to improve their performance and to invest in research and development. Thus FDI enhances the marginal productivity of the capital stock in the host economies and thereby promotes growth Wang and Blomstrom, This could happen through repatriation of profit and market stealing effect. Also, Stanisic did not find any positive correlation between FDI inflows and economic growth. Gorg and Greenwood conclude that the effect of spillovers from foreign-owned to domestically owned firms are mostly negative. From the various findings reviewed, the effect of FDI on the host economy is Page 1

2 controversial and inconclusive. Thus, this study aims at examining the effect of foreign direct investment on economic growth in Nigeria. The following hypotheses stated in null form guided this study: Foreign direct investment has no significant positive effect on economic growth in Nigeria. Exchange rate has no significant positive effect on economic growth in Nigeria. This study covered foreign direct investment activities in Nigeria and the growth of the economy for the period â This research work is beneficial to the following stakeholders: The study serves as a reference material for further research in this field. Literature Review Conceptual Review Foreign direct investment is an investment made by an individual or a company investor in a country which is not the country of origin of the investor, in the form of either establishing business or acquiring business assets in the country. In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how while fostering linkages with local firms, which can help jumpstart an economy Melnyk, Kubatko and Pysarenko, However, the special merits of FDI and particularly the kinds of incentives offered to foreign firms in practice have begun to be questioned Alfaro, Fueling this debate is that empirical evidence for FDI generating positive spillovers for host countries is ambiguous at both the micro and macro levels. In support of this fact, Hanson argues that evidence that FDI generates positive spillovers for host countries is weak. Although the theoretical work on FDI points to advantages, conceivably, spillovers could nevertheless be small. On the other hand it could be that we are looking in the wrong places Alfaro, Akinlo found that foreign capital has a small and not statistically significant effect on economic growth in Nigeria. Theoretical Review This research work is anchored on endogenous growth theory credited to Romer Helpman argues that endogenous growth theory emphasized two critical channels for investment to affect economic growth: Firstly, through the impact on the range of available products, and secondly, through the impact on the stock of knowledge accessible for research and development. Economic models of endogenous growth have been applied to examine the effect of FDI on economic growth through the diffusion of technology Khaliq and Noy, ; Barro, ; Barrel and Pain, FDI can also promote economic growth through creation of dynamic comparative advantages that leads to technological progress Khaliq et al, ; Borensztein, Gregorio and Lee, Romer argues that FDI accelerates economic growth through strengthening human capital, the most essential factor in Research and Development effort. Grossman and Helpman emphasize that an increase in competition and innovation will result in technological progress and increase in productivity and, thus, promote economic growth in long run. In contrast to all these positive conclusions, Reis formulated a model that investigates the effects of Foreign Direct Investment on economic growth when investment returns may be repatriated. She states that after the opening up to FDI, domestic firms will be replaced by foreign firm in the Research and Development sector. This may decrease domestic welfare due to the transfer of capital returns to foreign firms. Furthermore, Firebaugh lists several additional reasons why FDI inflows may be less profitable than domestic investment and may even be detrimental. According to the study, the country may gain less from FDI inflows than domestic investment, because of multinationals are less likely to contribute to government revenue; FDI is less likely to encourage local entrepreneurship; multinationals are less likely to reinvest profits; are less likely to develop linkages with domestic firms; and are more likely to use inappropriately capital-intensive techniques. FDI may be detrimental if it crowds out domestic businesses and stimulates inappropriate consumption pattern. Empirical Review Uwubanmwen and Ogiemudia examined the effect of foreign direct investment on economic growth in Nigeria using annual time series data covering the period to The data were analyzed using Error Correction Model. The results reveal that FDI has both immediate and time lag effect on Nigeria economy in the short run but has a non-significant negative effect on the Nigeria economy in the long run. Pulstova studied the effects of foreign direct investment and firm export on economic growth in Uzbekistan. The study covered the period â and descriptive method was adopted. He found that an increase in FDI may cause firms to increase their export of products. Muntah, Khan, Haider and Ahmad studied the impact of foreign direct investment on economic growth of Pakistan covering the period to Regression analysis was used in the study. They found that FDI impacts positively on economic growth of Pakistan. Agrawal assessed the relationship between foreign direct investment and economic growth in the Page 2

3 five BRICS economies, namely, Brazil, Russia, India, China and South Africa over the period â Cointegration and Causality analysis were applied. The results indicate that foreign direct investment and economic growth are cointegrated at the panel level, indicating the presence of long run equilibrium relationship between them. Results from causality tests indicate that there is long run causality running from foreign direct investment to economic growth in these economies. Melnyk, Kubatko and Pysarenko examined the impact of foreign direct investment on economic growth in post-communism transition economies. The study used neoclassical growth theory to analyze the effect of FDI on economic growth. They found a significant FDI influence on economic growth of host countries. They concluded that in addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how while fostering linkages with local firms, which can help to jumpstart an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies. The study recommended that transition and developing economies should pay more attention to the business climate and positive institutional changes. Otto and Ukpere assessed foreign direct investments and economic development and growth in Nigeria over a 41 year period. They observed that there is a positive relationship between foreign direct investments and economic growth in Nigeria. They suggested that policies are required which will facilitate foreign direct investments into Nigerian economy. Koojaroenprasit explored the impact of foreign direct investment on economic growth of South Korea using secondary data for the period â Multiple regression analysis was employed in the study. Furthermore, the study indicated that human capital, employment and export also have positive and significant impact, while domestic investment has no significant impact on South Korean economic growth. He argued that the interaction effects of FDI- human capital and FDI-export indicated that the transfer of high technology and knowledge has an adverse impact on South Korean economic growth. Roman and Padureanu found that FDI and capital endowments are positively correlated with GDP in Romania, but what was not expected was the fact that the human capital was negatively correlated with GDP evolution. As the authors stated, the last fact is explained by the reduction of Romanian population in Pelinescu and Dulescu found that direct FDI influence is still at a low level, but the indirect influence, through the increase in productivity and competitiveness is more evidenced in Romania. Jyun-Yi and Hsu analysed the effect of FDI on economic growth for 62 countries over the period It was found that FDI did not accelerate growth in all sampled countries. The authors used the LS approach for panel data estimations. Moreover, using the GMM method controlling for endogeneity and nonspherical errors, it was found that FDI did not have any positive effect on growth. The results of the threshold regression controlled for the amount of GDP, initial human capital, some social and institutional parameters do represent positive influence of FDI on economic growth. It was stated that recipient countries can learn and as a result benefit from foreign investors. Page 3

4 Chapter 2 : Impact of Foreign Direct Investment on the Economic Growth of Pakistan Empirical Literature of Foreign Direct Investment and Economic Growth Hadiji () examines the impact of foreign capital inflows on economic growth in a cross sample of 33 developing countries between to Foreign Direct Investment and Economic Growth July 2, Various proposals are currently being suggested to encourage higher foreign direct investment in countries within the euro area, particularly between individual member states. The intended goal is to assist in stimulating economic growth in the euro area. Against this background, this article provides an overview of the large and heterogeneous academic literature on the influence of direct investment on economic growth. The results of the existing studies indicate that direct investment often acts as a kind of catalyst and that a positive influence on economic growth becomes more probable when a country has a population with a high level of education, high-quality infrastructure, or a developed financial system. Foreign direct investment FDI is central to the economic integration of a country or economic area and represents an important financing source for capital investment. In addition, direct investment can also support the transfer of technology, expertise and organizational capital between countries, and thus also stimulate productivity growth. In recent years, however, FDI inflows to the euro area have exhibited muted development. After the strong FDI inflows in Europe in the s, during the creation of the unified single market and the preparation of a monetary union, a decrease in the international significance of the euro area as an investment destination began in the s. For most countries within the euro area, shares in inflows of direct investment made worldwide have steadily decreased and fallen considerably once again in the course of the financial crisis and the debt crisis in the euro area see, e. Direct investment from the northern member countries to the southern peripheral countries within the euro area in particular has fallen further below its already low level before the crisis. Capital links between northern and southern countries in the euro area were characterized relatively strongly by debt instruments and weakly by equity ever since the beginning of the monetary union. The significance of the central and eastern European countries, some of which have since entered the euro area, showed stable development up until the crisis, then decreased in recent years, likely connected with the slowing economic catch-up process EBRD, In contrast to Europe, the significance of the United States as an international investment destination has remained more or less stable since the beginning of the s. Emerging and developing countries, however, were able to markedly increase their significance as investment destinations in the course of dynamic economic growth. The decrease in significance of the euro area as an international destination for investment is mostly associated with comparatively less dynamic economic development in Europe and an improved regulatory framework for investors in other regions of the world see OECD, Furthermore, the argument is often made that the unified services market in the European Union is not yet complete, curbing cross-border investment within this sector see, e. Positive growth effects of FDI are found in empirical studies Given this background of low FDI inflows, various think-tanks and political consultants have argued for an improvement of the basic conditions for direct investment to countries within the euro area â particularly those within the monetary union see, e. It has been argued that foreign equity capital can contribute to the stimulation of economic growth within the euro area. This line of argument is based on the results of the academic literature, which has frequently investigated the empirical connection between FDI and economic growth with a variety of methods. A survey of these studies indicates that positive effects on economic growth could be found for FDI in most cases Carkovic and Levine, ; Alfaro and Carlton, ; for a comprehensive overview of the literature see Contessi und Weinberger, ; Deutsche Bank Research, However, the estimates of the size of the effect vary considerably, which makes it difficult to quantify the growth-enhancing effect of FDI. Some authors find that an increase of the inward FDI-to-GDP ratio by one percentage point raises economic growth by more than one percentage point, while others find very low effects. Various studies indicate that additional factors, summarized under the concept of absorption capacity, play a decisive role in the influence of FDI on economic growth. These Page 4

5 include the education level of the population see, e. The role of trade openness â measured by the share of exports and imports in the gross domestic product â is also frequently highlighted Balasubramanyam et al. Overall, the results of the academic literature indicate that FDI works as a catalyst and strengthens existing developments. Investigations focused on the newest developments at the European level see, e. Limits of Empirical Research When interpreting these scientific results, it must be kept in mind that empirical investigations are complicated by the fact that FDI and economic development mutually influence one another. On the one hand, FDI can increase economic growth, on the other hand, however, countries with stronger economic growth attract more FDI inflows Eicher et al. Difficulties in econometric analysis also arise due to the fact that direct investment represents pure financial flows within balance of payments statistics. According to international criteria, a share of at least ten per cent of voting capital is considered a direct investment. The various motives for FDI among companies typically cannot, or only insufficiently, be assessed using balance of payments statistics. Direct investment can be made with respect to the construction of production facilities greenfield investment or in the course of mergers and acquisitions brownfield investment. Furthermore, balance of payments statistics do not reveal whether direct investment has been made with the aim of acquiring a new market horizontal FDI or in order to manufacture intermediate products in other countries vertical FDI. In addition, offshore financial centers may distort data on foreign direct investment Zucman, ; Hanlon et al, In recent years, an increasing number of studies have been published, which attempt to isolate the effect of FDI on variables such as productivity or economic growth using data which has become more readily available at the firm level. Based on this data, it has become more possible to differentiate the various motives for direct investment. The results of these studies can also be interpreted to suggest that a positive but milder effect on economic growth can be expected from FDI inflows see, e. Many of these studies indicate that direct investment can increase the productivity of all companies and thus the growth potential not only of those companies that receive foreign investment capital. For this reason, the findings of these studies cannot necessarily be generalized. Conclusion In recent years, inflows of FDI to the euro area have exhibited muted development. This has led to calls to improve incentives for direct investment in order to contribute to an increase in economic growth. Although it is empirically difficult to establish an independent causal effect of direct investment on economic growth, the results of many studies indicate that direct investment not only provides financing capital for capital investment but can also stimulate economic growth indirectly through the transfer of management knowledge or technology. Overall, the results of the existing literature indicate that direct investment primarily functions as a catalyst and that growth-enhancing effects are higher where there is a high quality infrastructure or high level of education in the population. Growth and the Quality of Foreign Direct Investment: Study on the impact of the euro on trade and foreign direct investment. Determinants of foreign direct investment, Canadian Journal of Economics, 47 3, How does foreign direct investment affect economic growth? Foreign direct investment, productivity, and country growth: Louis Review, 91, A new global index of infrastructure: Bayesian Model Averaging in the presence of selection bias, Journal of Macroeconomics, 34 3, Reforms, Investment and Growth: European Attractiveness Survey Cross-border equity ownership is key to eurozone risk-sharing, Financial Times, Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms, Journal of International Economics, 95 1, Taking the Long Way Home: Tax Evasion and Offshore Investments in U. Equity and Debt Markets, Journal of Finance, 70 1, Endogenous determination of FDI growth and economic growth: The missing Wealth of Nations: Are Europe and the U. Quarterly Journal of Economics, 3, Page 5

6 Chapter 3 : Foreign Direct Investment (FDI) Abstract. Foreign direct investment (FDI) is generally considered as a key driver of global economic integration. FDI inflows are often seen as important catalyst for economic growth in the developing countries. By now it is well recognised that FDI can significantly benefit the economy of the host country and this may be the reason that governments of many countries around the globe formulate strategies that attract foreign direct investment in their countries. In addition to the direct capital financing, FDI can benefit the host country through technology spill overs, human capital formation, creation of competitive business environment, enterprise development and integration of international trade. Many international institutions, politicians and economists consider Foreign Direct Investment as a major tool of the economic growth of a country as well as the solution of economic issues. Foreign Direct investment plays a major role in the economic expansion when there is a shortage of domestic savings. It is not only an important source of capital inflows but also a major source of technology transfers in the host country. The capital inflows and technology transfer are considered as accelerators for economic growth, so foreign direct investment FDI is more likely to promote the economic growth of the host country. Technology transfer can be taken place in the host country through multinational firms while spill overs could be occurred by the interaction of domestic firms through the interaction of multinational firms with domestic firms, suppliers, customers and work force. Therefore, FDI can have a positive impact on income. For instance, Aitken and Harrison states that the net impact of foreign direct impact on the host country is very small. Literature Review A substantial literature rationalises the influence of foreign direct investment on the economic growth of a developing country. The existing literature highlights the effects of foreign direct investment on the economic growth of a developing country particularly Pakistan. Lee and Tcha indicates that FDI is the most effective way to achieve economic growth. Most of the authors consider FDI as a major engine of economic growth in a host country. In, Organisation of Economic Cooperation OECD reported the fact that FDI is considered as the only source of economic growth and modernisation for the countries with weak economies. Carkovic and Levine states that FDI is given a lot of importance by many governments, particularly the governments of developing countries treat FDI in a very special way. According to Hanson there are many examples of special treatment offered to foreign investors by the governments of the developing countries such as tax holidays, import duty exemptions, provision of land for facilities and some direct subsidies. So, these are some common examples which have been seen to encourage foreign direct investment in the host countries. According to Ford et al countries have their own public agencies which are given task to attract foreign investments in the country by using public funds. So, it shows that the governments are even ready to incur some costs to attract investments. Hill emphasized on the fact that foreign direct investment plays a positive role in the economic growth of the host country through transfer of capital, technology and management resources. He further states that these resources have the potential to speed up the economic growth of the host country and the most notable thing is that these resources can only be transferred to the host country through FDI. Beside capital FDI brings several more benefits in the host country like employment, management resources, modern technology and competitive goods. Balasubramanyam et al analysed the impact of foreign direct investment on the developing economies by using cross section and OLS regression. He found that FDI has a positive effect for those countries which have outwardly oriented trade policy but not for those countries which have inwardly trade policies. Although, foreign direct investment is considered as the vehicle of the economic growth of the host country but some estimated benefits may prove vague if the host economy is not able to take advantage of the new technologies or know-how transferred from FDI. Durham examined the effects of foreign direct investment FDI on economic growth using data on 80 countries. He founds that sometimes FDI has insignificant and adverse effects on the economic growth of the developing countries. He is of the view that the impact of FDI is dependent on the absorptive capacity of the host country. Zilinske states that the effects of foreign direct Page 6

7 investment can be positive as well as negative. Carkovic and Levine analyses the impact of FDI on the economic growth and their study came up with the conclusion that foreign direct investment has adverse effects on the economic growth of the host country. The environmental quality includes savings and financial development, trade openness, human capital development and technological development of the host country. So, the impact of foreign direct investment on the economic growth of the host country is still debatable. A large number of studies have been conducted so far to find out the effects of FDI on the economy but there is no consensus. Some studies came up with the findings that FDI has positive impact on the economy while others with negative impact. Some studies have found that the impact of FDI depends on the absorptive capacity of the host country that includes political, economic and technological condition of the host country. A higher level of saving and investment is required to increase capital formation in developing countries but the developing countries like Pakistan lack the desired amount of domestic savings. So, there is a gap between saving and desired level of investment which can be filled by external capital inflows. Foreign direct investment is one of the important sources of capital inflows. Jawaid investigated the relationship between the foreign direct investment FDI and the economic growth of Pakistan over the period Khan examined the link between foreign direct investment, domestic financial sector and economic growth for Pakistan over the period to The empirical study is based on the bound testing approach of cointegration advanced by Pesaran, et al. The results obtained from the empirical study suggest that FDI has a positive impact on economic growth both in the short-run and the long-run if the domestic financial system has achieved a certain level of development. Moreover, the study suggests that better domestic conditions not only attract FDI but also helps in maximising the benefits of foreign direct investment. By utilizing time series data from, the study concluded that FDI, trade openness and domestic capital positively affect the economic growth. Higher FDI replaces obsolete technology by advanced technology and educates the labour force of the country. Moreover, it is suggested that government should take some solid measures such as stabilizing the exchange rate in order to increase FDI in Pakistan. Tahir et al analysed the relationship between foreign remittances, foreign direct investment, foreign imports and economic growth by using time series econometric techniques covering the data over the time period of to The study found that foreign remittances and foreign direct investment have significantly positive role in the economic growth process of Pakistan. Moreover, it is recommended that that policy makers should take appropriate measures to increase foreign remittances and FDI, so that long run economic growth could be achieved in the long run. The results obtained from the study show that there exists a positive relationship between foreign direct investment and economic growth. The study came up with the recommendations that government should ensure political stability and enhanced domestic investment in order to attract more FDI in Pakistan. Falki investigated the impact of foreign direct investment on the economic growth of Pakistan by using production function based on the endogenous growth theory covering the period The results obtained from the study show that there is a negative and statistically insignificant relation between GDP and FDI inflows of Pakistan. Atique et al analysed the impact of FDI on the economic growth of Pakistan under export regimes. The study concludes that the growth impact of FDI tends to be higher under an export promotion trade regime as compared to an import substitution regime by utilizing the data for Pakistan over the period â The study analysis time series data over the period of to for the following variables; Foreign Direct Investment FDI, inflation rates, exchange rates and interest rates. A descriptive survey research design is adopted in the research study. The summary of the statistics of all variables is given below in Table 1. There is a steady increase in the values of GDP over the past 25 years that means economic growth of Pakistan has been increasing for last 25 years. The minimum value is calculated as USD The findings clearly indicate rising and falling trend in the values of FDI during the last 25 years. The value of standard deviation is calculated as The higher value of standard deviation indicates that there is a variation over the yearly values of foreign direct investment. Inflation Rate The findings on the inflation rate nominal values are shown in Table 1 above and Figure 3 below. Inflation rate The findings in the Table 1 and Figure 3 given above indicate the trend of annual average inflation rate values over the time period of The minimum Page 7

8 value of inflation is recorded as 2. The findings show that there is a rising and falling trend of the values of inflation rate with significant annual variations over the last 25 years. Exchange Rate The findings on the exchange rate nominal values are shown in Table 1 above and Figure 4 below: Exchange Rate The findings as presented in Table 1 and figure 4 above indicate the trend of foreign exchange rate values of Pakistan relative to the US Dollar over the period of The minimum exchange rate value is calculated as The findings indicate that there is a rise in the values of exchange rate over the past period of 25 years. Interest Rate The findings on the interest rate nominal values are shown in the Table 1 above and Figure 5 below: Interest rate The findings presented in the above Table 1 and Figure 5 indicate the trend of interest rate values over the period of The minimum interest rate value is calculated as 1. The findings indicate fluctuating levels of interest rate values with annual variations over the last 25 years. The findings clearly indicate that there is rising and falling trend in the values of interest rate over the past 25 years. Model Specification To determine the relationship between foreign direct investment and economic growth in Pakistan, the study conducts multilinear regression analysis among the variables. The regression model specification is as follows; 4. Multiple Regression Analysis The study conducts multiple regression analysis to determine the relationship between foreign direct investment and economic growth in Pakistan. The findings of the study are presented in the tables below. Model Summary The four independent variables FDI, inflation rate, exchange rate, interest rate that were studied, indicate It means that other factors not included in this study contribute 3. The F calculated value is greater than the F critical value which shows that the overall model was significant. According to the equation, by taking all the factors i. The findings of the data reveal that a unit increase in foreign direct investment FDI will lead to 3. Podrecca and Carmeci came up with the findings that investment is the most important determinant of economic growth as identified by neoclassical and endogenous growth models. Cockcroft and Riddell and Meier found in their study that firms choose a location for investment because of the comparative advantage in terms of low inflation rates, availability of raw materials, good infrastructure, adequate labour force and low capital cost. Castilla found that employment generation is another positive impact of FDI. Ramirez found that FDI allows for technology transfer and specialized knowledge which in turns favours and increase in productivity. Baracaldo that productive FDI usually results in long lasting and stable capital flows as they are invested in long term assets. Jawaid and Khan found in their studies that FDI has positive impact on the economic growth both in the short run and long run. Conclusions and Recommendations The study aims to analyse the impact of foreign direct investment FDI on the economic growth of Pakistan over the period The study utilized correlation and multiple regression analysis to determine the impact of FDI on the economic growth of Pakistan. The results of the study reveal that FDI has a positive impact on the economic growth of Pakistan. So finally, the findings of the study reveal that FDI positively affects the economic growth in Pakistan. Therefore, the study recommends that government policy makers should bring reforms in the domestic market in order to attract more FDI in Pakistan. New York and Geneva, Does foreign direct investment always enhance economic growth? Kyklos, 56 4, Chapter 4 : DIW Berlin: Foreign Direct Investment and Economic Growth of growth and foreign capital ï ows, country-speciï c factors, and other growth determinants, the data do not suggest a strong independent impact of FDI on economic growth. Page 8