Pakistan's Growth Empirics and Foreign Direct Investment: An Assessment of the Role of Domestic Financial Sector

Abstract

Purpose: This reseach endeavours to investigate the role of fiancial sector in determining the foreign direct inflows in pakistan. Design/Methodology/Approach: Autoregressive Distributed Lag Model is applied to conclude the nature of linear association among the variables, in this study, we have used time series data over the period 1980-2019 of Pakistan. A financial development index has been created to illustrate the financial development by using Principle Component Analysis (PCA). Robustness of the relation among variables is also checked, and incorporated this in the empirical model. Findings: The findings described very interesting implications, by exhibiting a positive association among FDI and economic growth in the presence of financial sector indicators. These conclusions hold notwithstanding in the presence or absence of Financial development Index. Therefore, the presence of strong financial sector is necessary to attract FDI and to smoothen the economic growth process. Implications/Originality/Value: The role of fiancial sector is indespensible in determining the economic activity. In addition to this, research at hand explore the inclusive nature of the relationships among foreign direct investment (FDI), Financial sector, and economic growth. It exhibits a reflection of the various sources of economic growth.

Keywords

• Financial Development
• Economic growth
• Foreign Direct Investment
• Inclusive Growth