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/> It is very complicated to investigate the impact of foreign capital inflows on all the sectors and variables all at once in a single paper using a single model. The major purpose of this paper is to explore the impact of FCI on the GDP Growth in Pakistan. Therefore, I narrow down my analysis only to the impact of FCI on GDP growth and as there are many types of FCI so I am not including all of them. I am using ‘Foreign Direct Investment’ (FDI) and ‘Official Development Assistance’ (ODA), as independent variables for showing FCI and GDP is taken as the dependent variable. Data for GDP, FDI and ODA is taken from the “World Bank Development Indicators: Online Database”.Coefficient of determination (R2) is 0.906 and Adjusted R2 is 0.901. It means that the 90% of variations in the GDP are explained with the help of FDI and ODA, this model has higher value of R2. The value of the F-Statistic is 165.5185 significant at 1% level of Significance. So, using the Multiple Regression (with intercept) is statistically significant. Let’s discuss the regression coefficients of the model now. All the coefficients β1, β2 are significant. The value of the β1 is 0.340343, it means that by 1% increase in FDI there will be 34% increase in GDP. It shows strong positive impact of the FDI on the GDP growth in Pakistan during the period of 1970 – 2007. And the value of the β2 is 0.239136; it means that by 1% increase in ODA there will be 23% increase in GDP so β2 also shows the strong positive impact of ODA on the GDP Growth in Pakistan from 1970 – 2007. Therefore, the estimated results of the model demonstrate that that there is a strong positive impact of the FCI on the GDP.

CONCLUSION

This research paper shows a positive impact of foreign capital inflows on the GDP growth in Pakistan during the period of 1970-2007. Foreign capital has helped in enhancing the GDP Growth through structural transformation of the economy, through overcoming budget deficits and BOP deficits. As Pakistan is a capital scarce country that’s why Pakistan always needs foreign capital inflows to bridge its saving investment gap, import export gap and technological gap. As the regression analysis of the GDP and the FCI (FDI+ODA) confirms the positive affect of FCI on the GDP i.e. GDP increases as the flow of foreign capital increases. Thus, the overall impact of the aid on the economic development is positive. The values of the regressions coefficients (β1, β2), for both FDI and ODA, are positive. But the value of β1 is higher than the β2 i.e. the FDI has more powerful and strong positive impact on the GDP growth in Pakistan than the ODA. The reason behind this less impact of ODA than FDI is that ODA is usually politically influenced so there are many political factors that are involved in Pakistan’s receiving of Official Development Assistance. Therefore, the Foreign Direct Investment (FDI) has more positive impact on the GDP.

POLICY RECOMMENDATIONS

The framing of effective policies and their implementation is very much important in the effectiveness of foreign capital inflows otherwise there are many negative impacts of foreign capital inflows as many studies have proved it, although this paper proves the positive impact of Foreign Capital Inflows on the economic growth but studies that shows negative impact of FCI on economic growth have also been discussed in the Section – II under the heading of Review of Literature. So