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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
FDI= α + β 1
ULBC+ β 2
INF+β 3
MS+ β 4
SS+ β 5
TB + ut
FDI= Foreign Direct Investment
α= Constant Term
ULBC= Unit Labor Cost
INF= Inflation
MS= Market Size
SS= Service Sector
TB= Trade Balance
U t
= Error term capturing the left over effects.
JUNE 2011
VOL 3, NO 2
Regression results of this model shows that there is a positive relation ship of FDI with inflation,
market size and trade balance. A negative significant relationship exists between FDI inflows
and unit labor cost. Unit labor cost shows high negative significance with FDI which shows its
importance in attracting FDI. There is insignificant negative relationship exists between service
sector and FDI inflows. The researcher explains the reason of this result in such a way that study
is from 1970-71 to 2002-03. there was no trade liberalization and sufficient infrastructure in past
in Pakistan due to which FDI in flows in service sector was very low, but in recent years
scenario has changed.
Shumaila et al (2010) discussed the determinants of FDI in Pakistan as after 2000 due to increase
in domestic and foreign trade the demand for telecom sector increased which attracted huge
amount of FDI in telecom sector. Further they discussed that literacy rate, market size,
population and percapita income plays very important role in attracting FDI in Pakistan.
Shumaila in another research discussed the importance of telecom infrastructure in the economic
development of Pakistan. She saw a positive relationship of GDP growth with investment in
telecom sector and teledencity. According to results researcher conclude that due to increase in
investment in telecom sector and high teledensity GDP grows positively.
Shumaila and Zaman (2010) studied the role of investment in the growth of trade both foreign
and domestic in Pakistan. They found empirically a positive relationship between investment and
trade over the period of 58 years. They also derived a relation that foreign investment has
improved foreign trade significantly than domestic trade. With the increase in foreign investment
local business transactions are executed efficiently and cost on foreign trades are minimized.
3. Data and Methodology
The portion of the study describes the methodological approach used in this study to find out
what numbers say about the relationship between dependent and independent variables and
whether the relationship is in accordance with the theories or not? Data sources, sample size and
variables will also be discussed.
3.1. Data source and sample size
Secondary data of 25 years has been employed for finding the relationship between FDI and its
determinants. In national sources of data economic surveys and state bank of Pakistan website
are important sources of macro indicators where as in international sources World Bank website
is a good database for macro indicators.
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