Relationship betweenFDI, Economic Growth, & Financial Development(Choe, 2003) used data from 80 countries from 1971 to 1995and used a panel VAR model to conclude that there is a strong relationshipexists between FDI and economic growth.
It further found that economic growthcauses GDI, whereas GDI does not cause economic emergence.(Mencinger, 2003) used a sample of 8 EU nationsto check the relationship between economic growth and FDI. They concluded thatFDI have relationship with financial increase due to spillover effect. Thediscipline further concluded that there was a negative coefficient ofcorrelation between FDI and growth.(Omran, 2003) conducted research on Arabcountries related to FDI, economic growth, and financial development. Theydiscovered that FDI will have a positive degree effect on the growth of Arabnations if there may be an interplay with economic variables at a giventhreshold level of improvement.
They concluded that domestic financial reformand liberal commercial policies final result in promoting FDI in a country. FDIbrand a positive impact on economic emergence through human resourcecapital(HRM) and efficient use of technology.By collecting data from 11 Central and Eastern Europeancountries by (Eller, 2006) examined the impact offinancial sector FDI on economic growth through effective measures takingsample size of 1996-2003. In this cogitation, results expose that quality ofFDI control the financial sector’sexploit toward growth within rising markets. (J.
B. Ang, 2008) analyzed the FDI growth in Malaysia forunderstanding the relationship between economic and financial growth and FDI.this study uses fourth dimension serial publication data from 1965-2004 anddiscovered that FDI and financial development are positively associated tooutcome in the long run. The study also indicates that economic growth effectFDI growth in the long run. (J.B.
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Ang, 2009)examines the role FDI yet economic improvement in Thailand by using yearlyseries data from the time period of 1970 to 2004. Finding of this study revealthat pecuniary development arouse economic development whereas output expandingupon in the long run effects negatively through FDI.(Choong, 2009) analyze the endogenous growthmodel between FDI and financial development in Malaysia for the period1970-2001.
Finding of this study expose that FDI, labor, governmentexpenditure, and investment play a crucial role in economic growth and FDI inlocal economic wealth. Moreover, the study appearance that FDI and financialdevelopment together exercise a significant effect on Malaysia’s growth execution.(Kundan, 2010) used aggregate annual clipserial data from 1980-2006 for Nepal attain from the IMF to find out therelationship among FDI and economic growth. By implementing the OLS method andGranger causality test, this study found a long-run relationship between thevariables causality flow from FDI to gross domestic product growth rate(GDPGR).(Shahbaz, 2010) conducted a study to explorethe roles of foreign capital inflow and domestic financial sector developmenton economic growth in Pakistan. This study uses annual data series from the WorldBank and economic study of Pakistan over the period 1971 to 2008 and implementsan ARDL bounds testing approach to co-integration and error correction model(ECM) for long-run and short-run relationships. It reveals that foreign capitalinflow have a positive effect on economic growth in this country (The WorldBank,2002).
By Adopting the same approach (Bekhet, 2015) used bound test forco-integration and Granger causality to evaluate the shot-run and long-runrelationships among FDI, GDP, SMI, M2 and Economic openness (EO). They found along-run and short-run relationship between FDI and it’s determinants, andGranger causality suggests a different causal relationship among the variablesin this study.(Faisal, 2016) used ARDL model, forinvestigating the relationship between economic growth, FDI, stock price, anddomestic credit to private sector (DCPS) in China. The findings indicated aunidirectional short-run Granger causality from stock prices to economicemergence and from economic growth to FDI.This paper examines the short-run and long-run relationshipamong the series of variables such as foreign direct investment, economicgrowth, domestic credit to private sector, money supply and inflation rate forthe period of 1987-2014. The results show that FDI, M2 have positive effect onGDP and also revealed that domestic credit to private sector is the determinantof FDI. They further concluded that FDI Granger cause GDP & vice versa. (L.
do Rosário V. D., 2017).The above demonstrated literature related to the issue ofFDI and economic growth it can be concluded that there are different factorsaffecting the relationship between FDI economic growth, as political conditionsvary from country to country. With some studies reveal a positive relationshipamong FDI & economic growth, but some studies found a negative relationshipbetween two.
This paper examines the relationship between FDI and economicgrowth among the particular variables in Pakistan by using OLS regressionmethod and Granger causality (GC) unidirectional.
