The impact of FDI and domestic investment on economic development, a comparative analysis form Pakistan and China

Abstract

The literature is consisting the impact of foreign direct investment and domestic investment on economic development of host country. We take the case of two countries, Pakistan and China during the period of 1990-2014. Foreign direct investment and domestic investment, addition with nine other variables including tax, trade, real rate of interest and infrastructure, secondary education, political stability infrastructure have been included in the study, to regress upon gross domestic products of this country. The methodology to test the impact of these variables on Pakistan & China economy, has been limited only least squares method. Empirical results revealed that foreign direct investment, domestic investment, tax, trade, and social economical factors, like secondary education, infrastructure, government’s final consumptions, and electricity consumptions have significant impact on gross domestic products in both economies. The country specific factors, political stability, and control of corruption have insignificant impact. The variables tax and real rate of interest are also negatively and significantly related to gross domestic products in both countries. Only In Pakistan the relation of electricity consumption has negative impact of gross domestic products, this may be due to shortage of electricity supply to industries, commercial even to domestic users. To achieve economic development in Pakistan authorities need to maintain political and economic stability, Control of corruption, encourage domestic investments, and make policies to attract foreign investors. Equal attentions should be given to formulate suitable monetary and fiscal policies.