The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan

Purpose – The purpose of this study is to analyze the role of infrastructure for and in ascertaining captivations of foreign direct investment (FDI). This work aims to investigate the effects of host country's infrastructure availability along with exchange rate and market size on inflows of FDI towards Pakistan. Design/methodology/approach – This study employs autoregressive distributed lag (ARDL) approach to cointegration and an error correction model based on ARDL approach using time series data for the period 1975-2008 in case of Pakistan. Findings – This paper reveals a strong positive impact of infrastructure in attracting foreign direct investment, in short and in long run, in case of Pakistan. Practical implications – The findings can be used to help out government policy makers on FDI as well as are equally important for international financial lender/donor agencies and countries interested in rehabilitation activities of flood-affected areas with special reference to infrastructure and FDI while extending financing facilities to Pakistan. Originality/value – This study contributes in the following manner: first, it gives better impending and understanding for decision making about foreign direct investment in Pakistan. Second, it is the first effort that an exclusive study on FDI with special reference to infrastructure made in Pakistan. Third, it depicts the closer relationship between FDI attractiveness and infrastructure availability.