Foreign Direct Investment, Economic Growth and Trade: An Empirical Analysis from Pakistan

This study analyzes that there is a significant impact of Foreign direct investment on total gross domestic products (GDP) and total net trade (Imports and exports) for Pakistan with the help of annual time series data for 1978 to 2016. We use Vector Error Correction Model (VECM) and the outcome shows that there is a long-term relationship between these variables. To support the result of (VECM) model we did more post-estimation diagnostic tests where we found that the residuals of the regressions have a normal distribution and shows a strong auto-correlation between the variables. The foreign direct investment has a positive and significant impact on total (GDP) and total net trade. The reason is that foreign direct investment is an important component of economic growth in Pakistan, it is also important to make policies that increase growth the decrease the barriers to capital flows.