Pakistanís strategic location being neighbour to China, India and Afghanistan, growing population, low cost labour and low competition makes it attractive location for FDI. Yet the growth in FDI in Pakistan hasnít been consistent, which makes this research attractive. This article investigates association of Exchange rate, GDP and Trade openness with FDI. The article has considered time series data from 1981-2010. The authors have used techniques of Johenson co-integration analysis for long run causality while we have incorporated Vector Error Correction Model for determining short run causality among the variables. The study found long rum causality from exchange Rate, Gross domestic product and Trade openness towards foreign direct investment in Pakistan. Thatís why Foreign Direct Investment, Exchange rate, Trade openness, Gross Domestic Product are co-integrated. Further the authors found no causality in short run among Gross Domestic Product, Exchange rate and Trade openness and foreign Direct Investment.To attract foreign direct investment in Pakistan, the legislators should smooth the procedure, and become vital to recognize these important determinants of the foreign direct investments.
Foreign direct investment; Exchange rate, GDP; Trade Openness; Pakistan
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