The Impact of Exchange Rate, Interest Rate and Economic Misery on Foreign Direct Investment: Empirics from Pakistan

Abstract

This study investigates the impact of economic misery, exchange rate and interest rate on foreign direct investment (FDI) in case of Pakistan over the period of 1972- 2019. The time series data for all variables is collected from various issues of Economic Surveys of Pakistan, State bank of Pakistan and WDI. This study has used Augmented Dickey-Fuller (ADF) and Philips Perron (PP) unit root tests for stationarity of the variables and Autoregressive Distributive Lag (ARDL) is used for co-integration among the variables of the model. The results show that there is negative and insignificant impact of economic misery and political instability on foreign direct investment in Pakistan. Exchange rate has positive and significant relationship with foreign direct investment over the selected time period. Exports have a negative and insignificant impact of foreign direct investment. Interest rate and GDP has a positive and significant relationship with foreign direct investment in case of Pakistan.