Abstract

The research investigates the causality relationship between FDI, Trade Economic growth in Pakistan. Using quarterly time series data from 1998 to 2009, this paper examines the causality relationship between foreign direct investment, international trade and economic growth in Pakistan. In VAR model, the integration and Cointergration analysis suggested that there is a long run relationship among the factors. The results of VECM causality test find bidirectional causality between foreign direct investment, export and economic growth, with are two important factors that enhance the affect of economic growth in Pakistan. Foreign Direct Investment has positive impact on the trade growth in Pakistan. It was revealed that government should play a positive role in proving security to the investors around the globe. It was further revealed that FDI should invest in various parts of Baluchistan as well as rural part of Sindh province.

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