Comparative Analysis Between Pakistan And China

Published Date: 02 Nov 2017

Abstract:

Among emerging economies, china is the biggest seeker of foreign direct investment as compared to Pakistan. The net inflows of Foreign direct investment in 2011(china 220143 million USS $, Pakistan 1309 million US $) shows a big difference. It seems like a big elephant versus an ant. This result can be due to variation in determinants of FDI in both countries.

The purpose of this study is to reveal and to check the dependency of FDI with relevant to different variables and the extent of the variation in comparison of both countries. Besides the general variables that affects the FDI, this study will also elaborate the in depth analysis of variables categorized under six heads in both economies.

As literature review shows that some factors are now no more worthy to attain or to acquire a competitive position for seeking FDI, like labour cost in china as compare to Pakistan. From this study, we can get which variables are more related and affecting to FDI and which are least based on the analysis of the results and literature review.

This study will help investors to look deeply for investing in a country and also it is a synthetic study based on what researcher did in past.

Introduction:

According to World Bank, World Development Indicators: "Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments". In general term, Foreign direct investment (FDI) is the process in which residents of one country (parent or source country) takes the ownership of assets for the purpose of manufacturing, distribution and for other activities of a firm in another country (host or target country). This FDI can be in the form of equity as like in joint venture and also in non equity forms like, franchising, licensing, subcontracting and product sharing.

Investors do invest across the globe beyond their home country and it is based on a number of factors. It can be to get production and manufacturing benefits in a country, can be to get benefit from country strengths like low cost labour, skilled labour force and political conditions. On the other hand some investors want and like to enjoy the benefits of first movers in a particular economy. The best picture is described in knowledge-capital model by Carr (2001). Thus the capital flow in the form of FDI depends mainly on advantages of host country and on the motive of investment by investor. Worries about investment decision by an investor stem from the determinants of FDI and their behaviours. The FDI decision on the hand, hinges on the characteristics of a particular country or location and the level of investment.

More than half of the global FDI is gained by emerging economies as per World Investment Report (2011). FDI played a crucial role in economic growth of a country. Different countries have different policies aimed at to seek FDI, creating strong incentives for investors to get the FDI. But policy makers as well as investors, as (I.A. Moosa 2006) argued that what are the particular aspects and criteria to estimate the determinants of FDI in a particular country. It is essential to unveil the determining factors to understand well the behaviour, why some countries are better in seeking FDI inflows as compare to others and what are the generalized factors effecting FDI in an economy. To identify the best determinants of FDI ,a large number of studies has been conducted but no clear explanation came out at the acceptance of generalized set of explanatory variables that can be treated as a significant measure of determinates of FDI. Because of 1980 debt crises, developing countries looked at new sources to acquire capital and FDI was the good picture. Later on they realized it as good source against trade and opened the door with less barrier and more incentives to utilize it.

FDI give access of foreign technology to host country and build the shape of the economy and also it allows exchanging host country lbour, resources with parent firm country. So FDI offers more benefits to the host country and especially if the host country is among developing one. As Lispy(1999) argued developing countries depends more on FDI as compare to trade. Developing countries are laggard in the field of technology and FDI is the best source to fill this gap within a small time. From this we can say that FDI give a host country more ways of financing, to prosper, to improve standard of living and also the movement of technology.

From the last two decades, the flow of FDI has changed towards developing countries like China, India and it is increasing day by day. Currently china is the second largest country that realized FDI as compare to whole world. As Sun (1998), Kamath, 1990, said that FDI helped a lot to become economically stable and to prosper, created more jobs, to increase exports, to improve labour skills and gave access to improved technology. Studies show a significant and positive relation of FDI and economic growth of a country and countries try to make good policies to seek more FDI ( Azam 2010 , Adhikary 2011). FDI not only provide capital to developing countries but also provide technology and employment to people (Mottaleb and Kalirajan, 2010). With the effect of china and Pakistan joined WTO, FDI enriched with more factors contributing to the economic and financial prosperity. Where it gave investors more opportunities to invest, it also created new factors that contribute to FDI determination in a particular area. It varies largely by location as from coastal areas to main inland areas and in special economic zones. As Pravin Jadhav(2012) gave answer of the question ,why FDI determinates are so important? Because they facilitate the decisions of policy maker as well as of the investor, and help them to monitor the flow of FDI.

FDI is realized mostly on the geographical, incentives offered by the government and sectoral basis, but to do so, it is not clear, are there any more factors that influence the decision. The decision based on these three dimensions will be good but it will not elaborate how one is doing and it will lack the big picture explanation of the decision. E.g. in case of the decision is based on geographic dimension, than the factors behind this decision can be labor cost or resources in comparison with home country to host country.

It is intuitive that FDI flow depends on the economical, environmental, infrastructural, human capital, trade and terrorism in a country. As the main purpose of this study is to reveal the main determinants of FDI. On the other hand we will check whether r factor change or remain same in a comparative analysis of China and Pakistan ,based on the assumption that factors will change due to the fact that china is second largest FDI seeker in the world and have different challenges in seeking as well stabilizing FDI as compare to Pakistan. As Bruce A. Blonigen 2004 concluded that factors that determine the level of FDI activity vary methodically across less developed countries and developed countries .With this, an analysis based on result will show us a better way to distribute the best as well as least effecting FDI determinant variables in both economies.

H2: Countries with higher per capita GDP and higher GDP growth rate are more

likely to receive larger amount of FDI compared to others.

LETRREATURE REVIEW

A large number of variables have been studied that show a relation with FDI in the form of theories of FDI or either in the form of hypothesis to show a measuring sense of cause and effect relationship of determinants of FDI.

From the investor point of view, FDI is categorized into different categories depending upon the need of investment and situations in domestic as well as global market. Dunning (1993) describes FDI can be horizontal FDI, if its purpose is to server local and regional consumers by local production in a host country. This type of FDI ,result in exports alternatives in a host country and get benefit by reaching nearer to consumer markets in a host country. On the other hand vertical FDI, particularly as it occur in manufacturing sector in which firms Invest in other countries to get resources such as, natural resources, raw material, labour etc. that are not available in home country. These two types have their own importance and a number of factors affect the form of FDI in a particular country.

Recep(2009)argues that investor do invest in another country than home country on the basis of the type of project, host country environment and how investor can get benefit from it. In a good way of analysis of FDI within states of US Coughlin(1991) argued that investment decision is related with cost and profit and then the factors contribute more to these two make the way clear .if costs factors are high and show negative relation with FDI than investor will avoid to invest.

FDI results in both positive and negative effects on the economic health of a country as Graham (1995) argues that positive effects can be transfer of technology and improved standard of living. On the other hand it also generates problem that may be FDI will reduce the domestic firm’s performance and revenue, and increasing the competition (Richard 2004) among industries in a country that eventually will again result in both negative and positive ways.

As Pravin Jadhav(2012) used different factors categorized into two dimensions and checked the effect of political and economical factors with FDI.As Chakrabarti (2001) concluded that FDI has a sensitive relation with many variables (wages, openness, tax, tariffs, growth, exchange rate)and literature is not clear in defining the determinants of FDI. Variables like (labor costs, trade barriers, trade balance, exchange rate, R&D, tax) have both negative as well as positive relation with FDI.

DTERMINANTS

RELATIONSHIP OF INDEPENDENT VARIABLES WITH FDI BUILT BY RESEARCHERS

Reasons for inclusion

POSITIVE

NEGATIVE

MARKET ECONOMICAL

GDP

Pravin Jadhav (2012)

Faik (2012)

James (2010)

Leitao (2010)

James B. Ang (2008)

Dr. Khondoker (2008)

Ying and Riming(2008)

Boudier-Bensebaa, F.(2005)

Qian Sun (2002)

Cheng (2000)

Love (2000)

Billington (1999)

Wang and Swain (1995)

-----

used as a measure of the market side of the economy

market size hypothesis

Inflation

Pravin Jadhav (2012)

Peter (2007)

Fayyaz Hussain(2012) Ali Al-Sadig(2009)

Recep(2009)

Erdal Demirhan & Mahmut Masca(2008) Yartey and Adjasi(2007)

Xiaoying li ( 2005)

Yang (2000)

Bajo (1994)

Schneider & Frey (1985)

measure of the rise in the price level of products in a country

POVERTY

-----

-----

measure of poverty in terms of poor people in a country

ENVIRONMENTAL

CORRUPTION (CPI)

Peter Egger, (2005)

Ali Al-Sadig(2009) Dr. Khondoker(2008)

Voyer and Beamish (2004)

Habib M & ZurawickiL (2002)

Smarzynska(2002)

Wei (2000)

measure of corruption level in a country

BRIBE (BPI)

------

-----

bribe as a measure to get unfair benefits in a country

Trademark

------

------

number of registeredtrade marks in a country

Industrial Design

------

-------

number of registered Industrial Design in a country

Patents

Qian Sun (2002)

STÈPHANE (1998)

-------

number of registered Patents in a country

Political Stability

Theo S. Eicher

(2012)

Zenegnaw A.H.(2010)

Schneider and Frey (1985)

Wheeler and Mody (1992)

measure of the ploitical condition in a country

Regulatory Quality

Pravin Jadhav(2012)

-------

measure of the institutional quality in a country

infrastructure

High-technology exports

-------

-------

measure of the technology level in a country

internet

Dr. Khondoker(2008)

Changkyu Choi(2003)

-------

measure of infrasturcture in a country

Electricity production (kWh)

Imad(2005)

-------

energy production to attarct FDI and to be rich in infrastructure

Air transport

Coughlin(1991)

-------

measure of infrasturcture in a country

Roads, total network (km)

Sung Jin Kang(2007) Coughlin(1991)

-------

measure of infrasturcture in a country

Rail lines (total route-km)

Sung Jin Kang (2007)Qian Sun (2002)

Coughlin(1991)

-------

measure of infrasturcture in a country

Telephone lines

Erdal Demirhan & Mahmut Masca(2008)

Imad(2005)

Recep(2009)

Xiaoying li (2005)

Dr. Khondoker(2008)

contribute to measure of infratsture of a country

human cpital

skilled Labor force

Fayyaz Hussain(2012)

Ali Al-Sadig(2009)

Wenhui Wei(2005)

Imad(2005)

Noorbakhsh et al. (2001)

E. Borensztein(1998)

Harry (1997)

-------

Students in tertiary education as a percentage of total population, measure of skilled labour force in a country

UNEMPLOYMENT

Boudier-Bensebaa, F. (2005)

Coughlin(1991)

-------

measure of the availibility and free people in a country

reserchers

Tomiura (2003)

Qian Sun (2002)

number of researchers in a country as a measure of research and development work in a country

trade

EXCHANGE RATE

Anjum(2005)

Wang and Swain (1995)

Campa (1993)

T.Bhavan

(2011)

Rana Ejaz(2010)

James B. Ang (2008)

Glauco De Vita(2008)

Chakrabarti(2001)

Avik STÈPHANE (1998)

Blonigen (1997)

Real effective exchange rate

measure of the comparative economic activity between countries

EXPORT

Rana Ejaz(2010)

Peter (2007)

Imad(2005)

Wenhui Wei(2005)

Singh and Jun (1995)

-------

Represents the FDI-exports relationship

and the degree of internationalization

IMPORTS

Faik(2012)

Peter (2007)

interest rates

Xiaoying li

(2005 )

0Yong Ting Aw (2009)

terrorism

major terrorist attacks

--------

Agrawal, Shivani(2011)

Mihalache (2010)

Abadie and Gardeazabal (2008) Blomberg and Mody (2007)

Enders and Sandler (1996)

ECONOMICAL

gdp is used a measure of market size by researcher and it is positively related to FDI (Wheeler and Mody 1992, Billington 1999, James 2010). If we held constant other factor, the larger the market size, the greater with the revenue expectation from an investment in a market and bigger will be the investment. On the other hand, larger market size enables an investor to achieve economies of scale and it results in lower cost and lower prices. In analysis of FDI determinants in central and eastern Europe, Resmini(2000) found that larger population size attract big size of FDI. Literature review showed that GDP has a positive effect on FDI and is used widely as measure of market size of an economy by the researchers and it is a prominent determinant of FDI.From the table we see that FDI has a positive relation with FDI.

Erdal Demirhan & Mahmut Masca(2008)concluded in his cross sectional analysis that country with less Inflation is good in attracting more FDI. Host country volatile inflation rate discourages FDI and create problems for investors for price setting, as devaluation of currency is also associated with inflation rate and reduce the earning of the investor (Peter2007). Fayyaz Hussain (2012), Fayyaz Hussain(2012), Ali Al-Sadig(2009), Recep(2009) ,Erdal Demirhan & Mahmut Masca(2008) used inflation as a measure of economic measurement of a country founded that it hinders the flow of FDI and has negative relation with FDI. Less as well as stable inflation in developing countries results in attraction of FDI. James (2010) on the other hand did not found any significant effect of inflation on FDI.

POVERTY in general is considered to be an opportunity to be a first mover to take advantage of investment in a particular economy. Poor countries have less technology and fewer facilities with poor standard of living. Poverty matters a lot while making the decision by the investor as well as in making the policy by the policy maker. Andrew Sumner 2005 argued that poverty cannot be missed as it has strong effect and influence in making the FDI policy. Investor can get benefits in the form of low wages, unemployment, income inequality and scare capital in a country.(Lensink and Morrissey (2001), Dollar and Kraay (2001), Soto (2000), GASTON GOHOU (2011), Khalid Zaman (2012 ) )founded that FDI played a key role in economic development of a country and reducing poverty and have a positive relation with poverty

ENVIRONMENTAL

Unfriendly business environment deter FDI (Dr. Khondoker). An environment with less corruption can encourage FDI as it reduces transaction costs of business. Investor perceive business environment to be clear so that contracts and disputes can be settled down easily and with fairness, as in case of patents and corruption ,china seems like a good market (wanda).in his work , Imad(2005) concluded that ,developed countries with good business environment( high openness and less country risk) attract more FDI. Asiedu (2002) argued that efficient environment is essential to attract FDI and infrastructure yield a positive impact with FDI. This means that if the environment of a country is good with good infrastructure, that country will attract more FDI.

CORRUPTION (CPI) generally defines corruption as "the misuse of public power for private benefit". Corruption affects the economic health of a country and it is in almost everywhere. As Smarzynska(2002) and Wei (2002) argued that corruption increase burden of foreign investor, increase the value of the contract as well makes contract more dependent on local partner and also reduce the fairness of bureaucracy of host country. As it happens mostly in case of intellectual property rights among local and foreign companies. Corruption effects the economic development of a country (Abed 2002). A higher intensity of corruption is usually related with an unfavorable country environment.

In a cross section analysis of 89 developed and less developed countries Habib and Zurawicki (2002) find that corruption tends to hinder FDI. On the other hand Peter Egger (2005) argued that corruption is an incentive for a forgeries investor and has positive relation with FDI. He argued that this happens mostly in low income countries, where government officials take money as a share from investor profits.

Where ( Habib M and ZurawickiL(2002),Smarzynska(2002)Wei (2000), Dr. Khondoker(2008)) argued that corruption has a negative relation with FDI and investor perceive it as a risk and tend to avoid in making investment in a outcry with more corruption. Business Environment of a country is examined well by this variable as it effects and have relation with other variables, like patents, bribe etc. BRIBE (BPI) is also used and defined in the term to measure the level of corruption in an environment.

Trademark, Industrial Design

Patents

Political Stability

Political stability and risk are generally affect the decision whether to invest or not in a particular

location (Dunning 1993; Moosa 2002).Political risk indicate the political actions that interrupts sales or causes harm to property or personnel which includes, riots, operational restrictions impeding their abilities to undertake certain actions, and governmental takeover of property. (Chakrabarti, 2001) argued that political risk has a negative relationship with FDI and deter FDI.

Regulatory Quality

infrastructure

Infrastructure plays a vital role for seeking FDI, better infrastructure of a country enable it to attract FDI (James 2010, Dr. Khondoker(2008). As in case of china (wanda, Harry 1997) found that good communication and transport infrastructure in coastal areas has attracted more FDI as compare to others.

James B. Ang (2008) argued that infrastructure matters in the development of a country and have strong positive relation with FDI.

High-technology exports

E. Borensztein(1998)argued that for diffusion of technology ,technology import , technology adoption and human capital acquisition are important factors.FDI boost the level of technology in a host country by different channels like multinational corporations. By this the economy of a country flourishes. As developing countries mostly lack in technology and FDI is a good way to fill technology gap by the transfer of technology from developed countries to developing countries Recep(2009)

internet

in cross country analysis of 14 source and 53 host countries, Changkyu Choi (2003) found that FDI inflows increase to more than 20 %when internet users in a host country are 10%.In a era of globalization, internet users in a country accounts for the well developed infrastructure of the country and investor look it as an ease to conduct business operation and with the use of E-commerce, internet is the main place for business to grow. (DePrince & Ford, 1999) argued that Internet use can lessen the cost of holding inventories by allowing large suppliers to detour retailers and contact customers directly.

Electricity production (kWh)

Air transport

Imad (2005) argued that, infrastructure can be best defined by adding, roads, railway and air transport with telephone lines as it provide a good way to reduce transportation costs of a business and facilitate the business.

Roads, total network (km)

Qian Sun (2002) Found that the FDI escalation of a province is positively related to the upgrading in the province’s infrastructure. RAILWAY that was used for the infrastructure level showed a big attraction for FDI. With a 1% increase in infrastructure FDI inflow became double.

Sung Jin Kang (2007) founded that highway variable is significant and is positive for coastal areas but it is negative for non coastal areas.

Rail lines (total route-km)

Sung Jin Kang (2007)concluded that measure of railway variable is significant and has a positive relation with FDI which shows that better infrastructure facilities attract more FDI in a specific region around the world.

Telephone lines

Recep(2009)argued in Analyses of FDI determinants in developing countries that telephone lines (communication ) is the best significant and positive determinant of FDI. Number of telephones per 1,000 inhabitants is used as a measure of infrastructure development by many researchrs ( Asiedu (2002) and Ancharaz (2003))

Telephone mainlines are telephone lines connecting a customer’s equipment to the

public switched telephone network. Data are presented per 1,000 people for the entire

country

human cpital

E. Borensztein(1998) in his study of cross country regression analysis postulated that economic growth depend on FDI when a host country have enough knowledge and ability to absorb and to gain advance technology. This is possible when host country have skilled and educated human capital. FDI is positively related to economic growth of a country when a country has human capital available. The location decision of an investor is associated with cheap and skilled labour availability in a country (Harry 1997).

skilled Labor force

UNEMPLOYMENT

reserchers

hand Tomiura’ (2003) study confirms that the positive association between FDI and

R&D is robust even if firms undertaking no FDI and/or no R&D are included

trade

fdi and trade have a strong relation, literature shows that trade is being offset by the trade, in the form of horizontal and vertical FDI by investor. If the benefits are less to produce from home country or parent plant than foreign market and economies of scale can be achieved in foreign market than FDI will occur, as mentioned by J. Peter Neary(2009).so a negative relation of FDI and trade is cited ,if the trade related cost decrease than it will discourage FDI activities. Although FDI is considered to be substitute of trade, as it reduce cost but other factors also matters as José Pedro (2007) argued in his study of non-monotonic relationship between FDI and trade. Literature is rich in describing horizontal and vertical FDI and its effect on trade as a trade offset. On the other hand Chakrabarti (2001), James B. Ang(2008) postulated that openness to trade (proxied by exports plus imports to GDP) is correlated positively with FDI.

Under trade I categorized following variables to check which factor is more effective against other.

EXCHANGE RATE

Real effective exchange rate is the nominal effective exchange rate (a measure of the value of a currency against a weighted average of several foreign currencies) divided by a price deflator or index of costs. "World Development Indicators" It is a better measure of comparative economic activity among countries than simple market rates.

Exchange rate is considered to be an effective determinant of FDI; also it matters a lot while accessing the country risk of a country. The general behaviour of FDI associated with exchange rate is that in case of appreciation of host country currency, FDI will increase and in case of depreciation of host country currency, FDI will decrease. In accordance to this if a firm invests with an approach to get higher future profit, than according to Campa (1993), and Edwards (1990) appreciation of host country currency will provide better opportunity and investment level will increase. Besides this , Sung and Lapan, (2000)stipulated both positive and negative relation based on the decisions made by the investor on factors ,like risk ,cost and timing to start business. Contrary to these FDI increases, if currency of host country is lower or depreciated, as investor will spend less on assets and other business cost by enjoying the benefits of difference between home and host country currency (Walsh 2010, Froot and Stein(1991).

As Anjum (2004) argued that coefficient for exchange rate can be positive if foreign investors are taking into consideration it as lower cost of capital and negative if they are expecting a higher return on their investments. Rana Ejaz(2010)founded that FDI increase to 0.41% with a 1% decrease in Pakistani currency exchange rate. So deprecation in Pakistani currency increase FDI.

Dramatic changes have been seen in the currency price of different countries, since the exchange rate has been started to be measured based on the supply and demand system, letting them to move freely and let the decision of settlement of exchange rate to be done by the market. This had changed the whole structure of managing exchange rate .while examining the effect of volatility in exchange rate on FDI in ASIAN countries, Ghulam(2012) argued that volatility can be due to Production Flexibility and Risk Aversion arguments, where Production Flexibility has positive relationship of exchange rate volatility with FDI and Risk Aversion arguments has inverse.

The purpose to add and to check exchange rate with other factors under trade is that how much it can affect the decision with import and exports.

EXPORT

Exports by a firm or an aggregate of firms in an industry to a foreign market were related to the firm’s investment or production or employment in that market. Export orientation for a country is very important for attracting FDI Singh (1995). The decision to invest in a country depend to a great extent on, whether the host country facilitate and is export promoting (EP) Bhagwati (I978).Cheaper business costs and EP are the main contributing factor in attracting FDI and also it helps in economic growth of a host country(Bhagwati, I985). Imad(2005)has used export as a percentage of GDP and concluded that developed countries with high openness attract more FDI.

Rana Ejaz(2010)argued that in case of Pakistan ,export has a positive relation with FDI and this shows that Pakistan has a policy to facilitate the export and like export oriented FDI. Due to this, investor can get benefit of cheap labour as well as resources availability in a host country. Economic condition of a country grow and boost when a developing country use export promoting policies and tend to seek export oriented FDI Balasubramanyam (1996). Wenhui Wei(2005) china is a best place for producing in bulk and doing business with export orientation Yun-Wing Sung(2000)argued that china likes export oriented FDI and it resulted into the development of china mainland while giving a lot of benefits to Hong Kong. From investor point of view , (Richard 2004) founded that foreign firms like exports and it increase the competition in domestic market as foreign firm have better facilities and good resources.

IMPORTS

Bhagwati (I978) argued that host country like to attract such FDI that can reduce its imports and can improve the exports. It also depends what a country is importing? As in case of china Zhao (1995) founded that imported technology has played a significant role in improving the technological capability of china. Peter (2007) founded in his work of Chinese outward FDI determinants that imports are significant but are negatively associated with FDI.

Qian Sun (2002) used ratio of total import over GDP of a province to measure the degree of openness of a province.

interest rates

If a foreign investor finances his investment through borrowing from a host country, it increases the host country interest rates. .

A.E. Harrison (2003) argued in his work that foreign firms face fewer obstacles than domestic firms for getting credit and some time incentives offered by policy maker in a country especially developing ones enrich this opportunity for foreign firms. Wenhui Wei (2005) founded that interest rate is a fragile variable and have positive relation sign in case of china and negative in case of India. Yong Ting Aw 2009 founded that interest rate is significant but has negative sign under the test of ADF and PP unit root test

terrorism

Since the 9/11 terror attacks in New York City in 2001, terrorism factor became a subject to be determined and mentioned while taking a decision of FDI. Advancement in technology allows terrorists to acquire latest weapons that can be used easily and with best results to cause a large destruction. Investor likes to invest in country free from risks, to secure his business. As Wagner (2006) argues that, to invest in a country, the decision mainly depend upon the condition of law and order in a particular country, cost of doing as well as running the business difficulty in doing business. These all factors show the level of country risk in a particular country. It is hot subject that is changing the world and is affecting all aspects of business world. Abadie (2008) concluded that terrorism results in a decrease in FDI in a host country after diversification of investment country portfolio by an investor.

While accessing the political risk and its effect on FDI, Busse and Hefeker (2007) argues that terrorism is the main contributing factor to detain FDI, whether it is in the form of a religious one or other. Terrorism in a country effects business sectors, industries as well as human resource. Michael (2010), in his work, said that terrorism effects the business internally and externally, its policies, strategies and human resource. Literature reviews (Enders, Abadie, Blomberg, Mihalache, Agrawal) shows that terrorism has a significant and negative relation with FDI. Syed Ejaz Hussain(2010) in his work on terrorism in Pakistan, found that different types of terrorism is effecting the country a lot .In case of Pakistan , Muhammad Arshad(2011) argued that decline in FDI in Pakistan ,is due to political instability , east Asian financial crises and war against terrorism.

Annual percentage growth rate of GDP per capita based on constant local currency.

GDP per capita is gross domestic product divided by midyear population

Measured by GDP or GDP per capita, market size seems to be the most robust

FDI determinant supporting the horizontal model

In 1998, the World Investment Report, UNCTAD (1998) has analysed the

determinants of FDI and host country determinants have been classified into the three

groups. These are politic factors, business facilitation and economic factors.

refrences

Dunning, J. H. (1993), Multinational Enterprises and the Global Economy. Harlow, Essex: Addison Wesley publishing Co.

I.A. Moosa, B.A. Cardak / J. of Multi. Fin. Manag(2006).The determinants of foreign direct investment:An extreme bounds analysis 16 199–211)

Carr, David L., James R. Markusen and Keith E. Maskus. 2001 "Estimating The Knowledge-Capital Model Of The Multinational Enterprise," American Economic Review, , v91(3,Jun), 693-708.

Wagner, Daniel (2007) "The Impact of Terrorism on Foreign Direct Investment",\

Busse, Matthias and Hefeker, Carsten (2007) "Political Risk, Institutions and Foreign

Direct Investment",

Recep Kok, Bernur Acikgoz Ersoy, (2009),"Analyses of FDI determinants in developing countries"pp. 105 – 123

Graham, E.H. (1995), "Foreign direct investment in the world economy", IMF Working Paper

WP/95/59,

Asiedu, E. (2002), "On the determinants of foreign direct investment to developing countries:

if Africa different?", World Development, Vol. 30, pp. 107-19.

Sun, H. (1998), "Macro-economic impact of direct foreign investment in China: 1979-96", working papers,

Coughlin, C.C., Terza, J.V., Arromdee, V., 1991. State characteristics and the location of foreign direct investment within the United States. Review of Economics and Statistics 73 (4), 675–683.

Pravin Jadhav( 2012 ) page 5 – 14Determinants of foreign direct investment in BRICS

economies: Analysis of economic, institutional and political

factor

Smarzynska, B. K., & Wei Shang-Jin. (2002). Corruption and cross-border investment: firm-level evidence. William Davidson Institute Working Paper No. 494:1-29.

Ghulam Mujtaba Chaudhary; Dr. Syed Zulfiqar Ali Shah;Dr. Mohammad Majid Mahmood Bagram: 2012 Do Exchange Rate Volatility Effects Foreign Direct Investment?Evidence from Selected Asian Economies 3670-3681

Sung, H. and Lapan, H.E. (2000) Strategic foreign investment and exchange rate

uncertainty, International Economic Review, 41, 411-423.

J. Peter Neary(2009). Trade costs and foreign direct investment page 207–218

José Pedro Pontes(2007)A non-monotonic relationship between FDI and trade369–373

Edwards, S., 1990. Capital flows, foreign direct investment, and debt-equity swaps in

developing countries. National Bureau of Economic Research (Cambridge, M. A.)

Working Paper No 3497

Walsh, P., Yu, J., 2010. Determinants of foreign direct investment: a sectoral and institutional

approach. IMF Working Paper 10 (187), 1–27.

Resmini, L., 2000, "The Determinants of Foreign Direct Investment in the CEECs ,"

Economics of Transition, Vol. 8 (3), pp. 665–89.

Froot, Kenneth A. and Jeremy C. Stein, 1991, "Exchange Rates and Foreign Direct

Investment: An Imperfect Capital Markets Approach," Quarterly Journal of

Economics, Vol. 106(4): 1191–1217.

James P. Walsh and Jiangyan Yu (2010) Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach IMF Working Paper

wanda tseng andharm zebregs(2002) Foreign direct investment in china: some lesson for other countries IMF policy discussion paper

Wang, Z.Q., Swain, N.J., 1995. The determinants of foreign direct investment in transforming economies: evidence from Hungary and China. page, 359–382.

Billington, N. (1999) "The Location of Foreign Direct Investment: An Empirical Analysis", Applied Economics 31, 65-76.Agrawal, Shivani, "The Impact of Terrorism on Foreign Direct Investment: Which Sectors are More Vulnerable?" (2011). CMC SeniorTheses. Paper 124.

Enders, Walter and Sandler, Todd (1996) "Terrorism and Foreign Direct Investment in

Spain and Greece"

Abadie, Alberto and Gardeazabal, Javier (2008) "Terrorism and the World Economy",

Blomberg, S. Brock and Mody, Ashoka (2007) "How Severely Does Violence Deter

International Investment?

Erdal Demirhan & Mahmut Masca(2008),DETERMINANTS OF FOREIGN DIRECT INVESTMENT FLOWS TO DEVELOPING COUNTRIES: A CROSS-SECTIONAL ANALYSIS page 356-369

Mihalache, Andreea (2010). "Who’s afraid of political violence? Evidence from industrylevel

FDI flows"

Boudier-Bensebaa, F. (2005) "Agglomeration economies and location choice. Foreign Direct

Investment in Hungary"

Peter Eggera, Hannes Winner(2005) Evidence on corruption as an incentive for foreign

direct investment932– 952

Leitão, N. C. (2010). Foreign Direct Investment: The Canadian Experience International Journal of Economics and Finance, 2(4).

Zenegnaw, A.H. (2010). Impact of Foreign Direct Investment on Trade of African Countries, International Journal of Economics

and Finance 2(3)

Habib, M., & Zurawicki,L. (2002). Corruption and Foreign Direct Investment. Journal of International Business Studies, 33 (2),

291-307.

Blonigen, B. (1997) Firm-specific assets and the link between exchange rates and

foreign direct investment, American Economic Review, 87, 447-465.

Smarzynska, B. K., & Wei Shang-Jin. (2002). Corruption and cross-border investment: firm-level evidence. William Davidson

Institute Working Paper No. 494:1-29.

Changkyu Choi(2003) Does the Internet stimulate inward foreign direct investment?

319–326

James B. Ang (2008)Determinants of foreign direct investment in Malaysia 185–189

Anjum Aqeel , Mohammed Nishat (2005) "THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN PAKISTAN"

Glauco De Vita (2008) Do exchange rates have any impact upon UK inward foreign direct

investment? 2553-2564

Avik Chakrabarti(2001) The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions page 89–114

Faik(2012)The determinants of FDI in Turkey: A Markov Regime-Switching approach1161–1169

Singh, Harinder and Kwang W. Jun, 1996, "Some New Evidence on Determinants of Foreign

Direct Investment in Developing Countries," World Bank Policy Research Working

Paper No. 1531.

Schneider, Friedrich and Bruno S. Frey, 1985, "Economic and Political Determinants of

Foreign Direct Investment", World Development, Vol. 13, No. 2, pp. 161–175.

Wheeler, David, and Ashoka Mody, 1992, "International Investment Location Decisions:

The Case of U.S. firms," Journal of International Economics, Vol. 33, pp. 57–76.

Wei, Shang-Jin, 2000b) "Local Corruption and Global Capital Flows" Brookings Papers on

Economic Activity, Vol 0(2), pp. 303–46.

Dr. Khondoker Abdul Mottaleb (2008) Determinants of Foreign Direct Investment and Its Impact on Economic Growth in Developing Countries MPRA Paper No. 9457

Bhagwati, J. N. (I 978). Anatomya nd Consequences ofExchangeC ontrol Regimes, vol. i, Studies in International Economic Relations, No. I0, New York: National Bureau of Economic Research.

Bhagwati, J. N. (I985). InvestingA broad,E smee Fairbairn Lecture: Lancaster University.

Kamath, S.J. (1990). ‘Foreign direct investment in a centrally planned developing economy: The

Chinese case’, Economic Development and Cultural Change, Vol. 39, N01, pp. 107–130.

Foreign Direct Investment in China: Determinants and Effects STÈPHANE DEES 1998. 175–194

E. Borensztein, J. De Gregorio, J-W. Lee How does foreign direct investment affect economic growth ? Journal of International Economics 45 (1998) 115–135

Ying,L. &Riming.C.,(2008). Function simulation of FDI, foreign trade and regional GD in

China, Journal of Economics and Foreign Trade Studies, 1(3), 232-243.

Harry G. Broadman, Xiaolun Sun 339–361, 1997 The distribution of foreign direct investment in China

Anjum Aqeel, Mohammed Nishat(2004)THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN PAKISTAN

Imad A. Moosa, Buly A. Cardak 2005The determinants of foreign direct investment:

An extreme bounds analysis199–211

Cheng, L.K., Kwan, Y.K., 2000. What are the determinants of the location of foreign direct investment? The Chinese experience. Journal of International Economics 51, 379–400.

Love, J.H., Lage-Hidalgo, F., 2000. Analysis of the determinants of U.S. direct investment in Mexico. Applied Economics 32, 1259–1267.

Yang, J.Y.Y., Groenwold, N., Tcha, M., 2000. The determinants of foreign direct investment in Australia. Economic Record 76, 45–54.

Bajo-Rubio, O., Sosvillo-Rivero, S., 1994. An econometric analysis of foreign direct investment in Spain, 1964–89.

Abadie, Alberto and Gardeazabal, Javier (2008) "Terrorism and the World Economy",

European Economic Review Vol 52 Southern Economic Journal 61, 104–120.

Michael R Czinkota, Gary Knight, Peter W Liesch and John Steen (2010) 826-843)

Terrorism and international business: A research agenda

Hussain, Syed Ejaz, (2010). "TERRORISM IN PAKISTAN: INCIDENT PATTERNS, TERRORISTS’ CHARACTERISTICS, AND THE IMPACT OF TERRORIST ARRESTS ON TERRORISM" Publicly accessible Penn Dissertations. Paper 136.

Adhikary, B.K. (2011). FDI, Trade Openness, Capital Formation, and Economic Growth in Bangladesh: A Linkage Analysis, International Journal of Business and Management, 6(1)

Azam, M. (2010). An Empirical Analysis of the Impacts of Exports and Foreign Direct Investment on Economic Growth in South Asia, Interdisciplinary Journal of Contemporary Research in Business, 2(7)

Muhammad Arshad Khan, Shujaat Ali Khan2011Foreign Direct Investment and

Economic Growth in Pakistan: A Sectoral Analysis PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS ISLAMABAD PIDE Working Papers 2011: 67

Zhao, H., 1995. Technology imports and their impacts on the enhancement of China’s indigenous technological capability. Journal of Development Studies 31, 585–602.

Bajo-Rubio, O., Sosvillo-Rivero, S., 1994. An econometric analysis of foreign direct investment in Spain, 1964–89. Southern Economic Journal 61, 104–120.

Abed, G.T., Gupta, S. (Eds.), 2002. Governance, Corruption, and Economic Performance. International Monetary Fund, Washington, DC.

Habib M., Zurawicki L., 2002. Corruption and foreign direct investment. Journal of International Business Studies 33, 291–307.

DePrince, A. E. Jr., & Ford,W. (1999, October). A primer on Internet economics. Business Economics, 34(4), 42–50.

Rana Ejaz Ali Khan and Muhammad Atif Nawaz(2010)Economic Determinants of Foreign Direct Investment in Pakistan J Economics, 1 (2): 99-104 (2010)

Balasubramanyam, V.N., Salisu, M. and D. Sapsford. 1996. "Foreign Direct Investment and Growth in EP and IS Countries." The Economic Journal 106(1): 92-105.

Harrison, Ann and Margaret S. McMillan. 2003. "Does Direct Foreign Investment Affect Domestic Credit Constraints," Journal of International Economics, 61(1): 73-100.

Bruce A. Blonigen Miao Wang 2004 INAPPROPRIATE POOLING OF WEALTHY AND POOR COUNTRIES IN EMPIRICAL FDI STUDIES NATIONAL BUREAU OF ECONOMIC RESEARCH http://www.nber.org/papers/w10378

Wenhui Wei(2005) China and India: Any difference in their

FDI performances? Journal of Asian Economics 16 (2005) 719–736

Richard Kneller and Mauro Pisu Export Oriented FDI Research Paper 2004/35

Peter J. Buckley, L. Jeremy Clegg, Adam R. Cross, Xin Liu, Hinrich Voss and PingZheng

2007 The Determinants of Chinese Outward Foreign Direct Investment pp. 499-518

Mottaleb, K. A. and K. Kalirajan (2010). "Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis", Australia South Asia Research Centre, ANU Working Paper, 2010/13.

Noorbakhsh, F., A. P., and A. Youssef (2001). "Human Capital and FDI Inflows

to Developing Countries: New Empirical Evidence", World Development, 29:9 (September), 1593-1610.

Schneider, F. and B. S. Frey (1985). "Economic and Political Determinants of

Foreign Direct Investment", World Development, 13, 161-175.

Fayyaz Hussain*Constance Kabibi Kimuli 2012 Determinants of Foreign Direct Investment Flows to Developing Countries SBP Research Bulletin, Vol. 8, No. 1, 2012

Ann E. Harrisona ,*, Margaret S. McMillanb Does direct foreign investment affect domestic credit constraints? Journal of International Economics 61 (2003) 73–100

Voyer, P., and Beamish, P. (2004) "The Effect of Corruption on Japanese Foreign Direct Investment." Journal of Business Ethics 50: 211–24.

Ali Al-Sadig The Effects of Corruption on FDI Inflows Cato Journal, Vol. 29, No. 2 (Spring/Summer 2009).page 267-294

T.Bhavan Changsheng Xu Chunping Zhong Determinants and Growth Effect of FDI in South Asian Economies: Evidence from a Panel Data Analysis International Business Research Vol. 4, No. 1; January 2011 page 43 50

Yong Ting Aw† and Tuck Cheong Tang2009 The Determinants of Inward Foreign Direct Investment: the Case of Malaysia Discussion paper

Yun-Wing Sung 2000 Chinese University of Hong KongCosts and Benefits of Export-Oriented Foreign Investment: The Case of China* 22/

Sung Jin Kang Hong Shik Lee (2007) The determinants of location choice of

South Korean FDI in China Japan and the World Economy

19 441–460

Theo S. Eicher a,⇑, Lindy Helfman a, Alex Lenkoski (2012)Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias Journal of Macroeconomics 34 (2012) 637–651

Foreign direct investment and economic growth: an increasingly endogenous relationship

Xiaoying li xiaming liu Worm Development Vol. 33, No. 3, pp. 393-407, 2005

Andrew Sumner 2005 Is foreign direct investment good for the poor? A review and stocktakeDevelopment in Practice, Volume 15, Numbers 3 & 4, June 2005 269-285

Lensink, Robert and Oliver Morrissey (2001) ‘Foreign direct investment: flows, volatility and growth’,paper prepared for the Development Economics Study Group conference, University of Nottingham, Nottingham, 5–7 April.

Reisen, Helmut and Marcelo Soto (2001) ‘Which types of capital inflow foster developing country growth?’, International Finance 4(1):1–14.

Dollar, David and Aart Kraay (2001) Trade, Growth and Poverty, mimeograph, Washington,

DC: World Bank. GASTON GOHOU ISSOUF SOUMARE

Does Foreign Direct Investment Reduce Poverty in Africa and are There Regional Differences? World Development Vol. 40, No. 1, pp. 75–95, 2012

Khalid Zaman a,⁎, Muhammad Mushtaq Khan a, Mehboob Ahmad 2010 bThe relationship between foreign direct investment and pro-poor growth policies in Pakistan: The new interface 1220–1227

Qian Sun a, Wilson Tong b,*, Qiao Yu (2002) Determinants of foreign direct investment across China Journal of International Money and Finance 21 79–113