Abstract

FDI is considered an essential catalyst for trade liberalization and economic growth in both developing as well as developed countries. From the past several-decades countries around the world are struggling to attract foreign investors for filling their capital, skills and technological gaps and consequently FDI had grown at least twice as rapidly as trade. This study is an attempt to thoroughly analyze these two crucial modes of resource and knowledge diffusion for Pakistan by empirical analysis of foreign trade and FDI from 1980-2016. ARDL approach is utilized for the statistical analysis with support of various techniques applied to FDI being dependent variables in econometric models. The empirical results of this study shows positive and significant effect of foreign trade on FDI inflow to Pakistan; coinciding with theory and supported by both sign of the coefficient and probability value.