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Does Domestic Interest Rate Determining Foreign Direct Investment in Pakistan?

Author

Listed:
  • Tehreem Pervez

    (Scholar, Lahore School of Accountancy and Finance, University of Lahore, Pakistan)

  • Mehreen Ijaz

    (Scholar, Lahore School of Accountancy and Finance, University of Lahore, Pakistan)

Abstract

This study analyzes the impact of domestic interest rate on FDI (in Pakistan). The present study is designed to estimate the impact of domestic interest rate, Gross domestic product per capita, merchandise exports and unemployment on foreign direct investment. For estimation purpose the study employs different econometric techniques i.e. Augmented Dickey Fuller test (ADF) and Autoregressive Distributed Lag Model (ARDL). Apart from these techniques different diagnostic tests have also been applied on the secondary data ranging from 1972-2013, collected from database of economic survey of Pakistan and World Bank. The results of the study reveal that domestic interest rate, Gross domestic product per capita and unemployment are positively and significantly related with foreign direct investment in Pakistan whereas the foreign direct investment and merchandise are significantly and negatively associated. The study concludes that in order to bag most from foreign direct investment government or policy makers should regulate interest rate at a level which is favorable to attract foreign investors and does not hurt domestic investors at the same time.

Suggested Citation

  • Tehreem Pervez & Mehreen Ijaz, 2021. "Does Domestic Interest Rate Determining Foreign Direct Investment in Pakistan?," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 7(3), pages 1-76–86, September.
    • Handle: RePEc:rfh:jprjor:v:7:y:2021:i:3:p:76-86
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    FDI; Domestic Interest Rate; Merchandise Exports; Unemployment; Gross Domestic Product;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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