Abstract

The aim of study is the empirical investigation that FDI and trade is complemented or substitute for Pakistan. We also analyzed the country characteristics like the lack of capital and comparative advantage and abundance of labor. The effect of FDI on trade has been observed by dividing the FDI in industry and manufacturing sectors. We will use the secondary data for the variables selected of host country Pakistan reliable data have been collected and verified by going through various sources like US census bureau Bank, WDI and IMF. The time series data for 21 years is collected from the 1988 to 2009. For our purpose of analysis the least square methodology and four models has been developed using ∆imports and ∆exports as dependent variable whereas FDI total and FDI in industry and manufacturing sector as independent variables. To support the evidence individual t-test and interpretation of the β1 has been developed. Pakistan is having lack of capital, infrastructure and technology so; foreign firms are investing a lot in the gas field’s exploration, telecom and food industries. Similarly Pakistan has the comparative advantage of both the resources and also the abundance of labor. More importantly the Pakistan is providing the investor free environment for the foreign firm to operate in the country. Pakistan has been receiving the large amount of investment into various sectors like telecommunication, oil and gas development, food and real estate. The USA has been investing a bulk of investment into these sectors. This study has been conducted by the division of FDI in the industry and manufacturing. Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement.  Pakistan has abundance in labor and comparative advantage of natural resources. This study will reveal that FDI has increased the production at industry level is increased and has enhanced the exports of the Pakistan. On the other hand the FDI has developed various industries of Pakistan like telecom, food and oil and gas exploration fields.