Foreign Direct Investment (FDI) plays a crucial role in speeding up the development and economic growth of a country. In developing countries rely on FDI to promote their economy as they face capital shortage for their development process. The strong growth performances experienced by Pakistan economy greatly depends on the FDI. FDI generates economic growth by increasing capital formation through the expansion of production capacity, promotion of export and creation of employment in Pakistan. FDI inflows of Pakistan started fluctuating from 1990s to 2012 and this high volatility of Pakistan FDI inflows drew the researchers’ attention to examine the factors affecting FDI inflows in Pakistan by using the annual data from year 1988-2012. Multiple linear regressions model is applied to study the relationship between explanatory variables and explained variable. Empirical results show that gross capital formation, exports, gross national income, have significantly and positively affect Pakistan FDI inflows. Other than that, external debt also significantly affects Pakistan FDI inflows but its relation with FDI is negative. Imports of Pakistan are the final goods & its relationship with the FDI inflow in Pakistan is negative. It is significant affect on FDI in Pakistan. Due to the war conditions in Pakistan the military expenditures increases sharply which shows the foreign investors disinterest in Pakistan from last few years and our results also shows a significant and negative relationship between military expenditures and FDI inflow in Pakistan.
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