Acta Universitatis Danubius. Œconomica, Vol 10, No 4 (2014)

Abstract

Foreign direct investment (FDI) has significant impact on economic growth of developing countries like Pakistan for many decades. This paper has an objective to know the effects foreign direct investment on economic growth for the period from 1971-2012 by establishing empirical relation between business industries of primary, secondary and tertiary sector with FDI through Panel Cointegration and Granger Causality Framework for the specified period. The results show the significance of FDI and economic growth with proxies of GDP with the evidence of cointegration between these variables. The results also present long term causality between FDI and GDP while two-way causality if found under short run. Overall sectoral level, there is positively significance is identified between FDI and GDP. The policy Implications are also discussed in the paper showing that efficient and effective utilization of FDI.