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巴基斯坦经济发展概述 为了了解巴基斯坦经济的跌宕起伏，分析其优势和劣势，进一步处理之前扼要重述巴基斯坦的经济发展是必要的。 巴基斯坦经济将使我们不断彰显政府权威，克服该国的经济问题，并进行相关的政策改革。这也将帮助我们在未来十年实现更快速的经济增长，并为该国的经济发展奠定坚实的基础。 早期（1947至1958年） 在巴基斯坦，对于经济的发展极其注意分区的直接影响，但从一开始政府就意识到发展规划的重要性。在1951年就准备了一个六十年的发展计划，然而，缺乏必要的信息和许多基本的统计数据编制，因此它不能根据国家资源进行适当的评估，包括人力，物力和财力的投入。此外，这个规划形成于1950-1951年朝鲜战争爆发之前，这场战争促进了外部经济的波动。因此，这个规划的实施没有按照原来的指示路线发展。 Overview of Pakistans Economic development It is necessary to recapitulate briefly the development of Pakistan’s economy in order to understand its ups and downs and to analyze its strengths and weaknesses, before proceeding further. This brief historical account of the economy of Pakistan will enable us to highlight various reforms undertaken by the government from time to time to overcome the economic problems of the country. It will also help us to determine what needs to be done in the coming decade to achieve a more rapid economic expansion and place the economy of the country on a firm long term footing. Early Stage (1947 – 1958) In Pakistan, despite its preoccupation with the immediate effects of partition, the government from the very outset realized the importance of development planning. A six year development plan was prepared in 1951. This plan was, however, prepared in the absence of essential information and many basic statistics; as such it could not be based on a proper assessment of national resources, consisting of human, physical and financial inputs. Furthermore, it was framed just before the Korean War in 1950-51, and revised at the time of external economic fluctuations generated by this war. Thus, its implementation did not follow the indicated lines. Bye and large, development proceeded by fits and starts and some maladjustments appeared in the economy. There was a fair amount of government involvement in the economic development process from the beginning, but the main impetus for growth, especially in industry, came from the private sector. Many Karachi based industrialists and traders who migrated from India had brought substantial capital with them. This, together with profits made from the steep increase in cotton and jute prices during the Korean War, formed the basis for investment in a wide range of industries, especially textiles. Despite the setback following the end of Korean War, considerable potential existed from import substitution, especially in consumer goods, and the private sector responded readily to a package of high protective tariffs, reduced tax rates and generous depreciation allowances. Because of an overvalued rupee, the effective protection for consumer goods was astronomically high though somewhat lower for intermediate and capital goods, so that very high rates of return were common. As a result, domestic production of consumer goods, which stood at 22% of the total supply in 1952, had risen to 92% by the year 1960. The main policies pursued by the government in the early years were unfavourable agriculture, reflecting the dominance of urban and industrial based interests. Due to the neglect of agricultural sector, an annual food grain export surplus or Rupees 14 million in 1952-54 was turned into deficit of Rupees 220 million by the year 1957-59 and the value-added in agriculture rose by only 1.3% per year. Although the value added in industry rose by 8.1% per year, the GDP increased by only 2.5% per year; and since population increased at virtually the same rate, the per capita incomes failed to rise. Thus, while a faltering economy with a precarious outlook had been converted into one that was beginning to grow, and while some promise existed for more rapid growth in the future, there was little to show in terms of improved living standards for the mass of the people by the end of the 1950s. It was gradually realized that agriculture should be given priority and provide the basis for the expansion of the economy. This thinking was motivated in many ways by the fact that for the further growth of the industrial sector the growth of the agricultural sector was a prerequisite. But then government had little time to see the shift of its overall policy put into practice. In 1958, a military coup abolished the parliamentary form of government, abrogated the 1956 constitution, proclaimed material law and ushered in a new phase of Pakistan’s economy. Growth Years (1958-1969) Politically the 1950s were characterized by persona, group and regional rivalries, and the resulting instability let in 1958 to army intervention under President Ayyub Khan. The 1962 constitution introduced a presidential form of government and an national assembly elected by an electoral college. Although the ban on political parties was lifted, restrictions remained to create what was called “a new political structure”. The role of politicians limited thus, the bureaucracy was given a fairly free hand in acting on the lessons learnt during the 1950s. In brief, these were taken to be that: An economic plan for the country must have the firm and constant support of the government for successful implementation; Implementation is impossible without an adequately organized administrative machinery with trained technicians and administrators; Too much direct interference in private sector initiative by a heavy handed government, especially when facing an acute shortage of skilled staff, tend to be counter-productive; The response to incentive encouraging manufacturing had been far beyond expectation; Agriculture sector cannot be neglected for long without hurting production and leading to substantial food imports. The Second (1960-1965) and the Third (1965-1970) plans placed major emphasis on self sufficiency in food grains, improvements in the balance of payments, and an increase in per capita incomes. Overall, plan outlays showed clearly greater concern for agriculture, with heavy investments being made in irrigation. Public sector participation in industry declined, and it was left to the private sector. A lower proportion of public funds were spent on infrastructure, which had improved greatly since 1947. While a complex of economic policies and measures contributed to growth in the main production sectors, two aspects of the economic policies in the 1960s stand out. The introduction of Export Bonus Scheme in the first half of 1960s, which encouraged industrial exports, once consumer imports had largely been replaced by domestic production. The introduction of high yielding varieties of wheat and rice towards the end of the decade, together with rapid spread of private tube wells for irrigation ushered in a new era of what is popularly known as the “green revolution”. The increased availability of irrigation water with the increasing use of fertilizers significantly accelerated the growth in agriculture production. Government policies, particularly farm support prices, also contributed towards this end. Price control were replaced by floor prices for agricultural products, restriction on the movement of food grains were lifted, fertilizer distribution was placed in private hands, and government intervention through price subsidies and lower export duties on cotton and jute alleviate to some extent the effects of an overvalued rupee on the farm income. However, by the end of the decade, a number of problems emerged which indicated that growth was not as firmly established as had been hoped. Exports began to experience serious difficulties, suggesting that despite the Export Bonus Scheme, the industry’s ability to compete on world markets had eroded by an overvalued rate of exchange. Associate with this was a marked slowdown in the rate of increase in private investment. Overall investment declined from 23% in 1964-65 to 15%. The mobilization of domestic resources fell short of the requirement and the resource gap widened drastically towards the middle of the decade – a major leading to the shortfalls in public investment towards the late 1960s In retrospect, it is clear that the pattern of growth launched in the early 1960s was predicated on high and continuing inflows of foreign assistance, and that these inflows were restricted in the period following 1965 war with India, the government had no adequate response. This pattern of growth also failed to address the issue of interregional and inter personnel income distribution. There were a widespread feeling that income inequalities had increased during the 1960s and the statement by Mahboob-ul-Haq, the Chief Economist of the Planning Commission, made in April 1968, that twenty two families owned 66% of industrial wealth and controlled 87% of the banking and insurance in the country, certainly played and important role in stirring up public resentment against the economic policies of the government. To gather with a growing resistance to the policy of “guided democracy”, the concern with the social and economic problems led to social and political unrest towards the end of the decade and set in motion the train of events that was ultimately to result in another war with India and in the separation of East Pakistan which is now Bangladesh in December 1971. Massive Nationalization Years (1972-1977) Following the chaotic conditions of 1970-71 and the separation of East Pakistan, a new government under Prime Minister Zulfiqar Ali Bhutto took power in December 1971 in extremely adverse circumstances, no only economically but also because of a general loss of confidence an d purpose. To cope with this very difficult situation and to restore confidence, the new government moved decisively and swiftly, with the aim of changing the political and economic structure of the country and shaping a new Pakistan. Early 1972, 31 largest manufacturing firms were nationalized, followed by the vegetable ghee industry in 1973. Life insurance and most petroleum distribution companies were nationalized in 1972. Banks and shipping followed in 1974, as did the export trade of Pakistan’s two principal export products, rice and cotton. The managing agency system, under which the production, pricing and other decisions of major firms were co-ordinated, and which created new monopolies, was abolished in 1972. Reforms favourable to labour and to smaller farmers were introduced the same year. In 1973, administrative reforms ended the privileges of the elite civil service. In 1972 the Pakistan rupee was devalued from Rupees 4.76 to 1.00 US Dollar to Rupees 11.00 to 1.00 US Dollar, and adjusted to Rupees 9.90 to 1.00 UD Dollar in 1973; and the Export Bonus Scheme was terminated. The years 1971 and 1972 were marked by turmoil and the economy barely grew. Growth in the agricultural sector dropped below the population growth rate due partly to the unfavourable natural conditions, but mainly due to the problems created by government intervention in the supply of agricultural inputs. Private industrial initiative was paralyzed by the fear of further nationalization and by constant eroding profit margins in the industries left in private hands. Misled by the artificially high industrial profits of the 1960s and the short lived export boom of 1972-73, the government assumed that industrial profits could be diverted into investment in new intermediate and capital goods industries in the public sector, and distributed more widely without affecting growth. A series of policy measure increased wages, established security of employment and fringe benefits (e.g. pension right for workers), increased the cost of capital, and strengthened the trade unions. The 1972 devaluation increased the cost of imported equipment, materials, and foreign loans, without providing adequate incentives to exports, profits declined, equipment worked beyond its economic lifetime, efficiency was impaired, and investment in traditional industries, especially in the textiles industry, fell to well below replacement rates. The hopes raised by the significant improvement in the performance of the economy during the 1950s and the 1960s were frustrated by the experience of the early seventies. The distributed political situation in 1970, leading to separation of East Pakistan in 1971, caused a major setback to the economy. The reforms introduced by the government in 1972-77 added a major element of uncertainty in economic relations which could not be removed by subsequent assurances. Nationalization of a significant part of the industry and of the entire financial system, including banking and life insurance, without adequate forethought and without much preparation, raised serious problems of public sector management. During the seventies, the impact of severe international economic crisis affected Pakistan in common with other non-oil-exporting countries, world inflation due to the rise in energy prices and subsequent emergence of recession, affecting the demand and prices of exports from developing countries, brought about a major adverse movement in the terms of trade of the developing countries. By 1977, the cumulative impact of persistent stagnation in the economy, combined with enlarged commitments for development projects, non development expenditures and subsidies, deterioration of balance of payments situation and unhealthy monetary expansion, had created an economic impasse. In other words, during this period, Pakistan was living beyond its resources. Immediately after taking over in July 1977, the new government headed by General Zia-ul-Haq embarked upon a process of policy adjustments to stabilize the economy. This process, which was in the nature of emergency steps, included budgetary measure to increase resources and control expenditures, a slowdown of the huge investment program in the public sector, and a commission to review the performance of the public sector industrial enterprises. The government also provided a clear definition of the importance it attached to the private sector. The small agricultural processing industries were denationalized and the area of investment open to private investment was greatly extended. Concessional credit facilities, tax rebates, and other incentives were introduced to encourage exports. Considerable improvements were recorded in the labour situation. In agriculture, support prices and a concerted effort to improve input availability to the farmer was undertaken. The above emergency measures achieved success in stabilizing the economy to some extent, but it was obvious that considerable effort was still required and some important policy changes were necessary if the economy was to be stabilized on a long term basis. Notwithstanding some improvements in output and exports and in the overall management of the economy, financial difficulties persisted. To a considerable extent, these difficulties reflected continuing pressures on resources, despite rapid recovery in output growth and the government’s efforts to restrain public investment and between imports and exports, imbalances which manifested themselves in sizeable balance of payments and budgetary deficits. It was, therefore, obvious that the adjustment process begun in 1977 had still far to go. Bye the end of eighties, it was clear that, despite sizeable growth in both agriculture and industry, Pakistan’s economy needed a major structural transformation. This was so because the generally satisfactory economic performance of early eighties coincided with worsening macroeconomic balances, which inhibited continued strong performance of the economy. Despite rapid growth and some reforms introduced in the period of 1978-1988, Pakistan’s economy still retained a number of weaknesses. These weaknesses included: Very low government savings with an excessive budget deficit, narrow and inelastic revenue base overly dependent on trade taxes, high consumption expenditures, and inadequate development expenditures; A fairly high debt servicing level; An inefficient financial sector with mostly public ownership, directed credit, segmented markets, and weak commercial banks; A highly regulated economy with public ownership, industrial licensing, and price controls; A non competitive and distorting trade regime with imports licensing, bans and high traffis. Before the end of 1988, the deteriorating resource position caused a financial crisis. The budget deficit reached 8.5% of the GDP and the current account deficit doubled to 4.3% of the GDP. Inflation increased to over 9%. Reserves fell by half from 886 million US Dollars to 438 million US Dollars, equal to less than 3 weeks of imports. The weakness of balance of payments clearly points to the urgency of vigorously pursuing a well thought out strategy designed to strengthen the structure of the economy by: Exports let growth; Limiting domestic absorption of imports; Stimulating remittance inflows; Diversifying export trade; and Changing the character of external capital inflows by eliminating dependence on short term credits and the enlarging the inflow of foreign direct investment. Era of Structural Adjustment PAGE 27 Literature Review The literature on economics pertaining to empirical findings and theoretical rationale across countries tends to demonstrate the FDI is a running blood for an economy. The concept of FDI is not new in the literature. Its different aspects have been explored and evaluated in the past. However, the determinants and impact of FDI in the past were explained theoretically without giving empirical evidence. With the passage of time econometric models equations and indices were used to find out the empirical results. These studies are different from the previous studies on various grounds. The previous studies were based on pure economic theory of international trade and firm. These theories also assumed the concept of perfect competition, identical production functions and no transportation cost (Kindleberger 1996). Recent theories, on the other hand, rest on the assumptions of market imperfections, oligopolistic interdependence and last but not the least, possession of monopolistic advantage. These assumptions can have a significant bearing on the factors which determine foreign direct investment inflows. The review given below covers both the theoretical and empirical studies on the subject following different approaches. It provides a complete list of theoretical determinants of FDI as well as the impact of FDI on international trade and economic growth. Early Literature As with much of the literature of this area, we take the traditional neo-classical growth model as our starting point followed by recent theories and empirical contributions. Solow (1956) argued that productivity growth results from increases in the amount of capital that each worker is set to operate. However, as capital per worker increases, the marginal productivity of capital declines. Ultimately, the capital labour ratio approaches a constant and productivity growth ceases. In this long run equilibrium GDP, the capital and labour force all grew at the same exogenously determined rate. It was at this point that technological progress came into play. To allow for long term growth in GDP per capita. Solow (1956, 1957), added an exogenous term labeled “technological progress”. On this assumption, the neo-classical growth model of economic growth predicts that in the long run, GDP per capita in all countries will grow at the same exogenously determined rate of technological progress. To the extent that capital is internationally mobile and moves to the countries where the prospects for profits are highest, this tendency should be considerably strengthened. Hence, the gaps in income levels between rich and poor countries should be expected to narrow and ultimately disappear. Solow concluded that countries where capital is scarce compared to labour or where labour ratio is low should be expected to have a higher rate of capital accumulation and higher per capita growth MacDougall (1960) analysed the benefits and costs of foreign investment from abroad. In his theoretical approach the impact of foreign investment on economic growth is based on a simple neoclassical framework. Kemp (1961) analyzed foreign investment and the advantages that the national economy receives from this type of external financing. Diamond (1965) holds that the future of the people in the countries which import capital is bright and that the future of the people in the countries which export capital is bleak. He laid special emphasis on the productivity of foreign investment. Otherwise, the countries receiving it might not get real benefits. Thus, the analysis of the early literature of the 1960s shows that the effect of foreign investment on economic growth are favourable in the short, but in the long run the benefits are not sustainable. FDI in relation to growth and trade The world economy has changed between 80s and 90s dramatically. While many countries were hostile to FDI in the 1960 and 1970s, most of them perceive FDI as making a positive contribution to their development. In this era of liberalization, a number of studies have been carried out to analyze the impact of FDI on economic growth in international trade. The introduction of FDI in standard Ramsay models yields interesting results. Under constant returns to domestic capital, the conditions for saddle point stability with FDI implies that negative consumption may not be avoided and hence FDI may be iminserising or dynamically inefficient, (Bhagwati 1973, Brecher and Diaz Alejandro 1977). Stoneman (1975) analyzed the influence of FDI on the economic growth of the developing countries. He found that FDI enhances the productivity levels owing to higher capital stock and at the same time improves the balance of payment position. The effects of FDI on economic growth are examined for different regions. The evidence obtained suggest that only Africa has improved its economic growth via FDI. The estimates for other regions, though, depict a positive relationship, were not significant. Bhagwati (1978) analyzed the impact of foreign direct investment with special reference to international trade. He found that countries actively pursuing export led growth strategy can reap enormous benefits from foreign direct investment. Export led policy is defined as the one which equates average effective exchange rate on exports to the average effective exchange rate on imports. On the other hand, imports substitution policies are worked out in such a way that the two exchange rates are not equal. The former policy favours free trade and underlines the need to boost exports whereas the latter emphasizes self-reliance through import substitution. Santiago (1987) analyzed FDI and its impact on the economy along with the determinants for the first time. The study takes into account the various determinants of foreign direct investment in the field of exports for Puerto Rice for the year 1979. The study finds that at least for this country low cost labour is not a major determinant of foreign direct investment. The study also demonstrates that the larger the size of the firm, the greater the volume of FDI in that industry. Apart from that macro-economic performance of the country also strongly affects the course of FDI in the host country. Another important finding of this study is that industry specific and location specific determinants are extremely vital to explain the pattern of variations of FDI in Puerto Rico. Gonzales (1988) extends the work done by Srinivasan (1983) by making an analysis of the welfare effects of foreign investment. He shows that if there are not distortions, foreign investment enhances the social uplift of the people. The study strongly favours import substitution policies since such a strategy provides greater job opportunities to the people and consequently improve their standards of living. But the study finds that welfare effects of foreign investment do not explain the pattern of trade in the economy. Thus, both Srinivasan (1983) and Gonzales (1988) concludes that foreign investment, sans distortions of the labour market, results in social uplift of the people. Gonzales (1988) further holds that foreign investment affects national incomes via the benefits accruing to the people of rural and urban sector. Hence, at least in the Harris – Tadoro economy foreing capital inflows improves national income and in turn the standards of living of the people independently of the pattern of international trade. Finally, he concludes that if the tariff is low and the absolute value of elasticity of rural wage is high, there is larger probability that foreign investment leads to higher national income. Balasubramanyam et al (1992) tested the hypothesis given by Bhagwati. His findings are also in favour of outward oriented approach since it results in high growth rates than inward oriented approach. This study uses cross sectional data for 46 developing countries for the period 1970 – 1975. Brown’s famous “Cusumsq” test was applied in this study to test the hypothesis. The findings of the study clearly reflect that FDI provides much needed fillip to the process of economic growth in countries pursuing vigorous export led policies. Shabbier and Mehmood (1992) conducted a study on how FDI influences the macro-economic performance of Pakistan. In their study, they used the simultaneous equation system. The analysis shows that there is a positive relationship between grants, loans, foreign investment taken together and economic growth. But FDI has negative effect of domestic savings. Fry (1993) conducted a study for a sample of sixteen developing countries to test the impact of FDI on macroeconomic growth performance. He placed the sixteen countries into various groups. Out of these sixteen countries, five countries were placed in the pacific group and the remaining eleven countries constitute the separate group. FDI has adversely affected savings in the specific group and thus shows no favourable results for the balance of payments. In case of group of eleven countries, the evidence suggests that FDI has improved the current account position of these countries. Malik (1996) analyzed that in most of the LDCs there is a debt crisis due to lack of capital. For this reason, they are facing disequilibrium in the balance of payments, debt reservicing, macroeconomic instability and growth deficiencies. There are two main objectives of the study, firstly to analyze that whether the FDI has a transitory or permanent impact upon host country. Secondly, whether the FDI is growth promoting or growth depressing. The study used the data of four years from 1989 to 1993 for 31 developing countries. The results of the study show that FDI stimulates economic growth in the economy. But growth does not necessarily attract foreign investment. This evidence is supported by common experience that countries with good growth prospects make efforts to attract foreign investors. Political stability and openness in trade are found to be the most significant determinants of FDI. Ana Marr (1996) has analyzed the FDI flows to low income countries. He concluded his paper by the review of the evidence that over the last 25 years, FDI in low income countries has been highly concentrated in three countries, China, Nigeria and India. Large market size, low labour costs, and high returns in national resources are amongst the major determinants in the decision of the investors to invest in these countries. New major destinations for FDI flows in the 1990s include Vietnam, China and Bangladesh. Given the access to their market, investment in these economies are mainly determined by the low cost of the labour and availability of natural resources. For the vast majority of low income countries, however, FDI is minimal. He found that there are several weaknesses in the economies of low income countries. To attract the heavy amount of FDI, these countries should give some incentives to the investors, liberalize their policies of protection and should enhance their skills, capabilities and technologies. Guisinger (1997) analyzes the effect of foreign direct investment liberalization on Pakistan. He surveyed the substantial evidence accumulated from OECD, NBER and World Bank studies on trade liberalization which generally show favourable effects on growth. He found favourable effects of foreign direct investment liberalization in simulations that he did for Asia using IC195, a multi region multi sector model. Based on the favourable growth experience of trade liberalization for most countries and his simulation experiments wich IC195 model, he concluded that Pakistan should experience few costs and considerable benefits from continued investment liberalization. Khan (1997) analyzes the policies and trends in the context of foreign direct investment in Pakistan. He attempts to find out the reasons why Pakistan has not been able to attract sufficiently large FID inflows despite liberalization of its economy. The factors responsible for low levels of FDI inflows are volatile political situation of the 1990s, deteriorating law and order situation in Karachi, the largest industrial and commercial centre of the country. In addition to this, the unfavourable business climate inadequate physical infrastructure and inconsistent policies on the part of the government have discouraged foreign investors. The lack of educated and skilled work force, along with other distortions in the labour market have prevented economic expansion and closed all doors to productive investment. He stressed the need for improving investment climate in the country which, in turn, is represented by the four “Cs”, cost, convenience, capability and concessions. According to him, Pakistan has so far focused only one “C” concessions and set all other “Cs” aside. Government must pay attention to the cost, convenience and capability aspects in order to encourage foreign investors in the country. Any policy package, not embracing these conditions is doomed to failure. Khan (1997) has analyzed a very important issue, to test whether aid has any impact of economic growth. The study tested this hypothesis on Pakistan’s economy, covering the period from 1972-73 to 1992-93. This paper has two objectives: firstly, to examine the terms on which Pakistan receives aid and whether its debt situations is sustainable. Secondly, to examine the impact of aid and debt on economic growth. In this study, he used two techniques of estimation to test the association of aid and economic growth. His study concludes that loans and aid have negative effect on Pakistan’s economy. These capital inflows do not raise productivity and weakens the savings base. As the result, the contribution of capital inflows on economic growth is insignificant. Shabbier H. Kazmi (1998) has analyzed the trend of declining FDI in Pakistan. He found in his study that Pakistan had an enviable track record of economic growth in the sixties and still it has the potential to repeat the story of the decade of development. It still enjoys incomparable economic fundamentals. The country has often come out various with pro-investment policies. However, the poor implementation of policies driven by pressure groups have been destroying the system. The post economic sanctions era shows that in order to increase the economic growth, the country has to revive the economy by attracting more FDI. He concludes that FDI is a running blood for the economy and it can work as an engine of economic growth and development. So in order to attract more FDI, Pakistan has to offer conducive environment to foreign investors comparable with other countries of the world. FDI in relation to its determinants Ragazzi (1977) shows that for foreign investors profit is the prime motive and not the objective of growth. The higher the rate of return of undertaking a project, the larger the volume of FDI into the host country. The study also shed light on the determinants of foreign direct investment. Market imperfections and custom duties can have a strong bearing on the pattern of FDI inflows. Apart from that, distortions in exchange rate can also play a vital role in determining the course of FDI. For instance if the exchange rate is undervalued it benefits the foreign investor whereas the local investors have no such incentive to invest abroad. Lucas (1993) examines the determinants of FDI inflows for the seven countries of East Asia and South East Asia. In his model of derived demand he included Indonesia, South Korea, Malaysia, Singapore, Taiwan and Thailand. In his empirical analysis, he used Cobb-Douglas cost function which was restricted and constant elasticity of substitution product demand. He used time series data for these countries for the period of 1960-87. FDI was measured in terms of net investment divided by that country’s deflator for fixed capital formation. The estimation results show that prices and costs affects FDI inflows. In this study, Lucas (1993) also measured elasticity of FDI. The sign of the elasticity of the FDI with respect to host country wages was negative. However, the elasticity of FDI with respect to export price has positive sign in six of the seven countries. As far as the relationship between domestic investment and foreign investment is concerned, in case of South Korea, Malaysia and Singapore, it was positive and statistically significant. For Philippines it was not significant. There is no such relationship between Taiwan and Thailand. The results also suggest that the greater the costs within the investors’ home countries, the greater the volume of FDI in host countries. The FDI inflows are found to be less elastic with respect to the cost of capital than to wages though this may be reflect difficulties in measuring capital. Apart from that, the estimation results also show that a greater share of FDI is directed toward places with major export market and high domestic demand. Perhaps, the most important finding of this study is that there is a positive relationship between domestic demand. Perhaps the most important finding of this study is that there is a positive relationship between domestic investment and foreign investment in majority of the countries. Agarwal (1980) emphasized on the role of political factors in determining the course of FDI. Two factors strongly influence the pattern of FDI in developing countries. There two factors are inefficient and corrupt political system and restrictive trade policies of the government to give protection to local industries. As regards the impact of volatile political situation, the evidence of the study shows mixed trends. Schnieder and Frey (1985) analyzes the impact of FDI in 80 less developing countries. For this purpose he estimated four models. The model which give the most reliable results takes into account the political and economic factors. The evidence obtained suggests that countries having higher per capita GDP have attracted more FDI inflows and as a result they have favourable balance of payments position. Since this study was carried out during the era of war, it considers the impact of aid coming from capitalist countries and Communist countries. Aid inflows from USA, EU countries and IFIs’ have provided impetus to growth. On the other hand, aid inflows from Socialist Bloc countries have failed to deliver the goods. The econometric model which considers political and economic factors performs better than the other three models since it predicts the future developments correctly. With the help of this technique, the model also predicts the distortions in FDI inflows which painstaking accuracy. Dunning (1981) puts forward an eclectic theory of foreign direct investment based on the theories of industrial organization and location of the form. TNCs exploit ownership specific advantages in foreign countries by internalizing rather than externalizing them. The most important benefit of internalization is that it provides access to the whole range of TNCs technological and skill assets including its tacit knowledge. He included 67 countries in his study and divided them into three groups by cluster analysis. The evidence suggest that per capita income in the host country has the dominant influence. It is found that even if the FDI crowds out some of the local investment, it might enable the host economy to expand its productive base and so use a large range of technologies because many technologies are available only in internalized form. Levis (1979) carried out a study that places more emphasis on economic factors and played second fiddle to political factors. His model includes 25 countries from Africa, Asia and Latin America for the period of 1965-67. It was found that economic indicators were most important to attract FDI inflows that political considerations. Among the economic indicators, there was a positive relationship between FDI and GNP. High growth rate holds out the hope of rapid economic development. On the other hand, higher price level has negative influence on FID inflows. A high inflation rate does not augur well for the economy. On the external front, since large trade deficit is also not a good omen, it adversely affect FDI inflows in the economy. Since this study was carried out in cold was period, it also finds that countries receiving foreign aid from capitalist countries attract large volumes of FDI than countries receiving aid from Communist countries. In this context, the political ideology of a particular country and its administrative political set up can also affect the FDI inflows into the host country. Akhtar (1995) had analyzed a number of location factors that might influence the scale and timing of manufacturing foreign direct investment into Pakistan for the period 1972-1995. To analyze the location factor for FDI, the estimated a simultaneous model for explanatory variables. In his study, he attempted to test empirically the significance of location factors for FDI. The findings of the study reveal that there is a great need for improving the location factors in Pakistan to attract both the market seeking as well efficiency seeking FDI. A more developed manufacturing sector, favourable exchange rate, rationalized trade policy, by political stability are the main areas of concern in providing an attractive investment environment of MNC’s in Pakistan. The existence of real competition among the developing countries, to attract FDI makes the MNC’s more selective about the choice of location for their investments. The most successful are the countries which provide the most attractive location factors. In this study as the author mentioned that investment incentives and labour productivity have not been included in the study. But in our study we have also included openness policy and structural shift variable as the determinants of imports, exports and for FDI. Secondly, Akhtar (1995) has founded the sample correlation among the variables but in our study we have estimated the key variables by using different approaches of co-integration. Barriers to FDI in Pakistan Pakistan remained the riskiest foreign direct investment destination in Asia between other Asian countries due to a very fragile government struggling to control a serious domestic riot. Due to alteration in political balance of influence, markets will be examining manipulation by opposition political parties and the military to measure the probable challenges to the government of time. Political stability is an important factor to pull foreign investment as it fabricates confidence of foreign investors. Lack of political stability has been an important feature of Pakistan’s politics in the history of Pakistan. Investors likely to invest in those countries which have high economic growth and strength because by strong economy foreign investor is assured for good opportunities for business and better returns. Macroeconomic indicators show that Pakistan is lacking of its macroeconomic potency, which of course adversely affects foreign direct investment (Zakira, 2008). Local business environment In Pakistan is so poor with low quality and high cost for foreign investors these includes availability of local lawyers, accountants, clerical services, architects and building contractors, local consultants and supporting industries. The availability, trustworthiness, and cost of infrastructure facilities such as power, telecommunications, and water supplies in Pakistan are unfavorable as other developing countries have but these are really important elements for a good business environment favorable to bring foreign investment. In Pakistan cost of business operations is very high as weighted against world’s standards of cost of doing business. The high cost of inefficient services of government-own sectors like energy, ports, railways and other public utilities increased cost of operating business. Power shortage and voltage instability, shortage of gas supply mainly due to a partial network and relatively high incidental and operation costs linked with these services have significant costs on investors. Pakistan has severe shortage of technically skilled and knowledgeable labor, which may have disheartened foreign investors. A precisely skilled, learned, and healthy labor force along with labor laws of a country are significant factors in catch the attention of foreign investor. Labor laws in Pakistan are very complicated, which depress job creation, reduce business growth, and scares away important desirable fruitful foreign investment. The results of these labor laws have been seen an obstacle to foreign direct investment in Pakistan. A primary barrier to foreign direct investment in Pakistan is a weak and slow legal system, and a weak legal system cannot ensure enforcement of contracts. Conclusion The above cited literature and the studies particularly pertaining to Pakistan based on theoretical and empirical evidences, indicate several areas of concern regarding FDI, Trade and economic growth. It is better if we analyze the impact of FDI on trade and economic growth over time series data since it is a dynamic problem which emerges over time. Moreover, it is also evident that literature on the subject matter is very limited, particularly; pertaining to Pakistan and further research is needed on the issues. Besides, the existing literature either partially focused on the foreign sector or crude methodology was used to analyze the issue related to FDI. Apart from that, the rest of studies with the exception of few, have not shed any light on the emerging situation during the 1990s. One of the main reason for undertaking this study is to draw the attention of the policy makers to address the issues which inhibit the growth of FID in Pakistan. This study is a departure from the previous studies in the sense that it analyses the impact of FDI of international trade and economic growth together. |
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