An Application of Foreign Direct Investment’s Gravity Model for Pakistan

Abstract

A developing country tries to attract investments in order to improve financial infrastructure, technological resources, production processes and human resources etc because financial investments in a country fosters the up-gradation of production processes, technological advancements and fills capital gap of the economy. This particular study has emphasized on importance of FDI and application of FDIs Gravity Model for Pakistan to sight the reasons for loss of FDI and how can the model facilitate the inflow of FDI. The developing countries are competing with each other in their respective regions to encourage the inflow of FDI by providing conducive investing environment to the developed countries of the world. This study is an effort to study the effect of gravity model on FDI of Pakistan for which 24 FDI contributing countries are considered for a period 1984-2012. The Model and results of the study ascertains the relationship of determinants of FDI. This study has generated some recommendations for Pakistan to focus along with the limitations which may be considered for future researches.