FOREIGN DIRECT INVESTMENT (FDI) AND ITS IMPACT ON THE PRODUCTIVITY OF DOMESTIC FIRMS IN PAKISTAN

Atif Hussain


DOI: http://dx.doi.org/10.22555/pbr.v18i4.1111

Abstract


The aim of this study is to find the impact of FDI on productivity
of local firms in Pakistan. Seven different sectors i.e. mining,
manufacturing, utilities, construction, whole sale and retail,
communication and finance sectors with 193 firms (including foreign and domestic firms) for the period 2002 to 2011 are considered. Fixed effect method of panel data regression is used to analyze the data. The results reveal that FDI and other control variables capital intensity, economies of scale, firm’s size and firm’s age have a positive and significant impact on labor productivity in Pakistan. FDI brings technology, new knowledge, highly skilled management and investments to local firms which confer a competitive advantage and economies of scale thus increasing their productivity. Pakistan has tremendous opportunity for foreign direct investment and the government must provide friendly and safe environment to foreign investors so that they gain confidence to investment here.

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