Does Domestic Interest Rate Determining Foreign Direct Investment in Pakistan?

Tehreem Pervez and Mehreen Ijaz
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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

Journal of Policy Research (JPR), 2021, vol. 7, issue 3, 76–86

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.

Keywords: FDI; Domestic Interest Rate; Merchandise Exports; Unemployment; Gross Domestic Product (search for similar items in EconPapers)
JEL-codes: E24 F30 G12 (search for similar items in EconPapers)
Date: 2021
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