The Impact of Foreign Capital Inflow (CPI) on Pakistan’s Economic Development

  • Dr Shabana Noreen,  Assistant Professor Department of Political Science, Islamia College Peshawar
  • Mr. Nasir Khan, Lecturer, Department of Political Science, Islamia College Peshawar.
  • Ms. Farah Noreen, M Phil Economics, Department of Economics, Qurtuba University Peshawar.
Keywords: Remittances, Aid, FDI, ARDL, Pakistan


The influence of the component of the foreign capital inflow (FCI) on GDP growth has always been a contentious issue among the academics and still the magnitudes of the elements of foreign capital inflow (FCI) was not confirmed. Therefore, this study was accomplished to check the effect of the component of the foreign capital on Pakistan’s GDP growth to used ARDL and granger-causality methods for estimation from 1975 to 2020. Results indicated that foreign aid, personal remittances, and FDI has beneficial and important effect on GDP growth. There is short-period equilibrium is converged to long-period equilibrium with 53% adjustment level and exist long-period co-integration among the variables. This study also found that there is a two-way causality among remittances and GDP growth, while there is unidirectional causality running from FDI to GDP growth. However, there are no causality found between aid and GDP growth. Therefore, this study confirmed that the FCI has helpful consequences on GDP growth of Pakistan. This study recommended that the government should attract FDI inflow, more remittances, and aid to enhance economic growth.