Impact Of Infrastructure On Fdi In Context Of Cpec In Pakistan

FDI inflows play an important role in bringing growth and development to developing economics.Pakistan is also heavily dependent on FDI inflows for achieving a high growth rate.Decline in the inflow of foreign direct investment(FDI),no positive growth in exports,falling in physical infrastructure and at the same time launching ?China Pakistan Economic Corridor? are the phenomena which have been observed by economists.Although,there is a vast literature available which throws light on FDI leads economic growth relation based on infrastructure but this study will certainly add new dimensions to the ever increasing research on overseas investment in developing countries,especially Pakistan.In this empirical study,I tried to investigate the role of infrastructure in enhancing the attractiveness of FDI recipient countries on the bases of different countries data including Asian,European and African countries over the period 2007–2016.By using panel data framework,results from the entire analysis show that transportation capital has been an important ingredient in making the countries attractive to foreign direct investors in both the short and long run.The main finding of the study is that countries with higher infrastructure level(in the form of goods transported via railways,rail lines,freight via airways,and liner shipping connectivity index)experience higher level of foreign direct investment.The results are consistent with those obtained recently by scholars,particularly for developing country cases.The positive and significant lagged value of the dependent variable from the dynamic panel data estimates,suggesting that there is a self-reinforcing effect of FDI and that foreign investors? incremental knowledge about investment opportunities in host countries is important also.This study explores an empirical relationship by using two different dependent variables.In first equation FDI inflows is taken as dependent variable and Balance of Payment(BOP)to enforce business contracts as indicator Trade Barriers(TB)and the strength of Investor Protection(IP)are taken as independent variables.In second equation,FDI percentage of GDP is taken as dependent variable and the independent variables same as above.This study also examines the impact of China Pakistan Economic Corridor(CPEC)on the patterns of FID in Pakistan economy.The limitations of this study do not allow us to estimate the return and to highlight possible challenges and risk factors for the investors.However,these can be assessed in the more specific studies for further each project.