The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan

Ch. Abdul Rehman, Muhammad Ilyas, Hassan Mobeen Alam, Muhammad Akram


Purpose – The purpose of this study is to analyze the role of infrastructure for and in ascertaining captivations of
foreign direct investment (FDI). This work aims to investigate the effects of host country's infrastructure
availability along with exchange rate and market size on inflows of FDI towards Pakistan.
Design/methodology/approach – This study employs autoregressive distributed lag (ARDL) approach to
cointegration and an error correction model based on ARDL approach using time series data for the period
1975-2008 in case of Pakistan.
Findings – This paper reveals a strong positive impact of infrastructure in attracting foreign direct investment, in
short and in long run, in case of Pakistan.
Practical implications – The findings can be used to help out government policy makers on FDI as well as are
equally important for international financial lender/donor agencies and countries interested in rehabilitation
activities of flood-affected areas with special reference to infrastructure and FDI while extending financing
facilities to Pakistan.
Originality/value – This study contributes in the following manner: first, it gives better impending and
understanding for decision making about foreign direct investment in Pakistan. Second, it is the first effort that
an exclusive study on FDI with special reference to infrastructure made in Pakistan. Third, it depicts the closer
relationship between FDI attractiveness and infrastructure availability.

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