ANALYZING THE NEXUS BETWEEN FOREIGN DIRECT INVESTMENT AND INDUSTRIAL PRODUCTION INDEX: THEIR IMPACT ON PAKISTAN'S GDP

Abstract

This study investigates the dynamic relationship between Net Foreign Direct Investment (NFDI), the Industrial Production Index (IPI), and Pakistan’s Gross Domestic Product (GDP), with an emphasis on determining both short-term and long-term linkages among
these variables. The research utilizes annual time series data spanning from 2010 to 2022, analyzed using EViews 9.0. To achieve robust results, the study employs several econometric techniques, including the Johansen Co-integration test, the F-Bound test, the Augmented Dickey-Fuller (ADF) test, and the Auto-Regressive Distributed Lag (ARDL) model. The findings reveal that all variables are stationary at first differences with intercepts. The Johansen Co-integration test confirms the existence of a long-term equilibrium relationship between NFDI, IPI, and GDP. Additionally, both the F-Bound and ARDL tests further corroborate the long-run dynamics among the variables. The results suggest that while NFDI positively influences Pakistan's GDP, IPI has a negative impact. These findings contribute valuable insights into the role of foreign investment and industrial production in shaping Pakistan's economic performance, offering implications for policymakers aiming to foster sustainable economic growth.