Impact of Exchange Rate Movements on Foreign Direct Investment in Pakistan

Abstract

Any large economy's macroeconomic performance is strongly influenced by exchange rate dynamics. Study analysis the effect of exchange rate on foreign direct investment inflows in Pakistan. In addition to exchange rate, this study considers macroeconomic indicators such as GDP per capita growth, broad money, inflation and external 0debt. This study utilized retrospective data from the years 1984 to 2024. Current study used ARDL model to address the integration of variables at different orders precisely one or zero. Autoregressive distributed lag model also serves as a tool for conducting limit tests in cointegration and estimating both in short and long run effects. Study findings indicate a strong negative connection between short and long-term fluctuations in currency rates and FDI inflows. GDP per capita, broad money, inflation, and external debt all significantly and positively influence FDI both in short run and long run analysis. It is imperative to address the underlying issues that are causing Pakistan to experience substantially lower growth in foreign direct investment inflows than the region. Still, this study can have a major impact on areas including public finance, world economics, global commerce and foreign direct investment policy-making.