THE ROLE OF FOREIGN CAPITAL IN STIMULATING DOMESTIC INVESTMENTS IN PAKISTAN

Abstract

Pakistan, a developing country, desperately looked for foreign investment in order to promote growth and investment. Pakistan introduced a number of policy measuresin the last few decades and attracted substantial foreign investments. But it is not clear whether foreign investments inflowsin Pakistan played any role in growth and development in Pakistan? Thisstudy employs a system of equationsto investigate the nexus between FDI, portfolio and domestic investment in Pakistan. The main objective of thisresearch isto measure the impact of foreign direct, port_x0002_folio investment and other forms of capital inflows on domestic, especially on private invest_x0002_ment, in Pakistan. The resultsshow that FDI inflows promoted domestic investment in Pakistan, where FDI and domestic investment reported a one-to-one relationship. The findings of the study also confirm that domestic investments contribute to FDI inflows; thus, FDI and domestic investment mutually cause each other. On the other hand, portfolio investments play an in_x0002_significant role in determining domestic investment in Pakistan. This shows that compared to portfolio investment, Pakistan needsto focus on foreign direct investment inflowsfor promoting growth and private investment at home.