DETERMINANTS OF INTERNATIONAL CAPITAL INFLOWS IN PAKISTAN

Abstract

This study attempts to ascertain the importance of international capital inflows by examining the determinants of international capital inflows (Foreign Direct Investment and Foreign Portfolio Investment) in Pakistan in the disaggregated form with inclusion of financial liberalization as key determinant. Annual data set is taken from several issues of Pakistan Economic Survey from 1973 to 2015 and from 1990 to 2015 for Foreign Direct Investment and Foreign Portfolio Investment respectively. To study the Long Run and Short Run dynamics, Pesaran’s ARDL Bound Testing approach is utilized. The estimation results showed that market size, financial liberalization, financial depth and cost factor are significant determinants of FDI inflows in Pakistan. On the other hand, the significant determinants of foreign portfolio investment inflows in Pakistan included macroeconomic conditions, financial liberalization and conditions of stock market.