Abstract

This study aims to do an empirical investigation of the causal relationship among FDI (foreign direct investment), trade, real effective exchange rates and economic growth. Economic growth attracts FDI and enhances trade as explained in some literatures. The present study focuses on Pakistan during the period 1980 to 2012. The Johansson co-integration analysis shows the long term relationship between the Trade, FDI, real effective exchange rate and economic growth of Pakistan. The results of ECM suggest that there is a significant relationship between the variables. The findings of this study suggest that foreign income, foreign direct investment, GDP, trade and real effective exchange rate significantly affect trade. The Granger causality test shows that export causes increase in economic growth and economic growth attracts the inflow of FDI.

Key word: Investigation, enhancement, significance, economic growth, inflows.