Impact of FDI and Foreign Aid on Economic Growth

Abstract

Pakistan has been divided amongst different time periods of its economic growth. With unstable regimes and sudden capital inflows, the economy has been on a steady increase. This paper aims to look into Foreign Direct Investment and Foreign Aid’s Impact on Economic Growth. The time series data from 1971 to 2015 have been applied serial correlation, unit root, and co-integration tests to find results. The economic growth includes GDP and human capital variables resulting in a deeper analysis of how both Aid and Investment take play in the everyday growth of Pakistan. The results show that while there is a significant positive relationship between FDI and economic growth, there is no significant relationship of Foreign Aid with economic growth. These findings allow policy makers with the suggestions presented to allow sustainable growth in the long run.