LINEAR

REGRESSION
A N A LY S I S 1
TA B L E O F C O N T E N T S
CHAPTER NO. 1:
INTRODUCTION
 The three economic determinants of inflation, foreign direct investment, foreign
remittances, and economic growth will all be examined in this research

This research explains how international remittances, foreign direct investment,

and inflation affect economic development

1.1 It is a statistic used to assess a nation's economic development

INTRODUCTION
OF PROJECT It may investigate the variables affecting a nation's economic size as a share of the
world's gross domestic product

Foreign remittances and GDP are the main elements affecting Pakistan's economic
growth

One of the top 10 countries that receive remittances is Pakistan

 According to the 2008 World Investment Report, FDI helps developing
nations continue their long-term growth by transferring skills and
technology, increasing productivity, and generating jobs

The questions at hand are why investors and other firms are keen to
invest overseas and why FDI is essential for a host country
1.1
INTRODUCTION
OF PROJECT The answer to the first question is that poor countries often have high
labor rates, nearly low literacy rates, and fewer capital-intensive
businesses

With the assistance of spillover knowledge and technology transfer, the

FDI also provides local employees with the education they need to
overcome production and economic growth challenges in the future
 One of the most important economic metrics is the gross domestic
product

It's used to keep track of a country's economic health

1.2 It considers a number of factors, including consumption and

investment
BACKGROUND
The growth cycle is influenced by inflation, foreign direct
OF PROJECT investment, and foreign remittances

International markets will be able to focus on commodities with the

lowest opportunity cost

The findings imply that FDI has both a long-term and short-term
substantial and beneficial influence on Pakistan's GDP
1.3 OBJECTIVES
1.4 CONCEPTUAL
FRAMEWORK
 This study will help to update Pakistan's
economic policies

1.5
Pakistan's government has the capacity
SIGNIFICANCE to create new plans for regional
economic growth

It will help to provide information

about foreign remittances, inflation and
foreign direction investment
 The two most important factors influencing Pakistan's economic
growth are foreign remittances and GDP

Pakistan is among the top 10 beneficiaries of remittances

CHAPTER
NO. 2: Pakistani migrants' remittances to their homeland are steadily
L I T E R AT U R increasing

E REVIEW Pakistan is a country with a population of around 150 million

people

Foreign investment, according to our findings, has harmed

Pakistan's economic productivity, but domestic investment has
improved the country's economy
 Balasubrammanyam and Sapsford and De Mello both contend that FDI is a
combination of capital stock, knowledge, and technology that may be leveraged to
increase the current stock of the economy via management practices, skill
development, training, and organizational structure

2.1 Both studies came to the same conclusion: Foreign direct investment boosted the
economies of developing countries

POSITIVE
I M PA C T S FDI facilitates commerce between developing countries, which benefits the
economy overall

Depending on the level of human capital in receiving countries, the impacts of

FDI may vary, according to a 1998 research by Borensztern E, Gregio J, S. Lee, J.,
and others
 The results demonstrate that although inflation
has a detrimental impact on Pakistan's economy,
FDI has a positive and significant advantage
2.1
POSITIVE
I M PA C T S By using system generalised approach
methodologies, it has been shown that FDI,
remittances, and official development assistance
have a positive and significant impact on the
economic growth of developing countries
2 . 2 N E G AT I V E I M PA C T S
• According to Durham , FDI has a small and negative impact on the economic growth of impoverished countries
• He arrived to the conclusion that the amount of FDI that flows to recipient countries depends on their capacity to absorb
technology
• Research by Ali Sharafat indicates that inflation and FDI have long-term negative consequences on Pakistan's economic
growth
• A single-direction causal association between growth and FDI, services debt, inflation, and literacy rates was validated
by the short-run analysis
• However, the consequences are negative in countries with stronger economies, such as Taiwan and Japan
• However, FDI makes little contribution to accelerating the speed of economic growth in the recipient countries
 FDI's impact is still up for debate

Some studies found positive benefits, while others found negative ones,
2.2 depending on the estimating factors, such as politics, the economy, and
technical characteristics of recipient nations

N E G AT I V E
I M PA C T S Pakistan's history can be divided into two distinct periods

Pakistan lost half of its resources during this time, in the form of
Bangladesh, as a result of two wars that took place
 In Pakistan, FDI has a long history that dates back to

2.3 FOREIGN
DIRECT In the 1950s and 1960s, Pakistan's economy saw significant
growth
INVESTMENT
I N PA K I S TA N The early FDI policy, according to Shoo , was intended to keep
the majority of stakes with local businesses

In addition, Pakistan adopted a self-reliance strategy in the

1950s, 1960s, and 1970s by boasting the import of goods that
could be substituted locally and relying solely on foreign aid to
finance the investment
The private sector completely dominated the economy in the
1960s, but because FDI was absent from the banking, finance,
and other service sectors, these markets were only open to
domestic investors
CHAPTER 3 THEORETICAL
FRAMEWORK
• To explain how FDI affects the economic development of the host country, theoretical perspectives
may be separated into two categories: modernization and dependency theories
 Dependency theorists claim that foreign investment has a negative
impact on developing economies because of income inequality, lower
reinvestment, and profit repatriation

FDI inflows to the "periphery" therefore disrupt local businesses;

3.1 impede technological advancement, and "crowd out" indigenous
enterprises
DEPENDENCY
Although initial foreign direct investment has a favorable influence on
THEORY growth, continued dependence on FDI has a negative effect on growth,
according to Dixon and Boswell

The dependence theory of FDI and its impact on economic growth in

developing countries was widely promoted by economists in the 1970s
and 1980s
 The endogenous growth hypothesis was first put forth by Roomer, who is
regarded as one of the main proponents of this theory, in

3.2
Endogenous growth shows how FDI, in addition to capital accumulation and
ENDOGENOUS technology transfer, greatly contributes to economic growth via labor skill
development and labor training
GROWTH
In addition, endogenous growth research has demonstrated that elements
that influence FDI-relevant country conditions, such as interdependencies
between domestic and foreign investment, an adequate level of human
capital, open trade regimes, and well-developed financial markets, have a
favorable effect on growth
 This growth model is founded on the idea that the engine of
economic expansion is the innovation or development of
things that already exist
3.3
I N N O VA T I O N - The strategy is predicated on the notion that innovation
BASED speeds up capital growth
GROWTH BY
GROSSMAN Gene M. Grossman and Elhanan Help man developed this
idea into a theory that clarifies how innovation results in
AND HELP long-term growth in a host country
MAN
FDI would be more successful in developing countries if it
combines strong management abilities with more cutting-
edge technology
 The FDI and positive spillover theories were
presented in-depth in the 1970s

3.4
Hymen suggested that knowledge transfer and
TECHNOLOG spillovers were the causes of technological and
Y scientific inequalities across businesses worldwide in
his foundational study from
SPILLOVERS
Technology knowledge may be utilized by producers
other than the inventors to improve output because of
its non-rivalry nature
 The acceptance of foreign partners is seen to increase competition in the
host country's market

3.5
Productivity increases are the consequence of domestic businesses being
COMPETITIV obliged to use contemporary production technologies and resource
management practices
E EFFECT
If declining market shares result in decreased capacity utilization in existing
companies or the use of smaller production facilities, domestic enterprises
will be forced to operate on a less efficient scale while disseminating the
advantages of technological advancements to customers in other countries
 The modernization hypothesis' proponents also assert that FDI
promotes economic growth in general by generating employment
and increasing income levels in the host country

The reliance argument, on the other hand, argues that MNCs may
3.6 impede economic development by driving out local company
owners, deteriorating the income distribution, reducing consumer
LINKAGES welfare, and encouraging inadequate spending behaviors in the
host countries

The host country's enabling environment, political and economic

stability, institutional strength, infrastructure, and educational
system all have a significant role in the likelihood that FDI will
have favorable effects
3 . 7 D ATA
• Foreign Direct Investment is "an investment made by a business or entity domiciled in one country
into a firm or organization formed in another one." FDI is quite different from indirect investments
like portfolio flows, which involve foreign entities purchasing equities listed on a nation's stock
exchange
• Population is the age group between 15 and 64, which is utilized as labor input since data aren't
available
• Inflation is characterized as a consistent rise in prices for goods and services together with a decrease
in the purchasing power of money
• Gross Capital Formation involves adjustments to increase fixed assets in the economy as well as net
changes to the amount of inventories
• Trade contains the total of an economy's exports and imports
CHAPTER NO. 4:
METHODOLOGY
 4 . 1 M O D E L S P E C I F I C AT I O N

1 2 3
Gross domestic product will The data will be collected The following model will be
be dependent variableand from World Bank website used to run regression
Inflation rate , Foreign Direct and MS Excel will be used
Investment and foreign for applying linear regression
remittances as independent
variable sin this research
project
C O M B I N E D VA R I A B L E S M O D E L
• This model will show the connection between foreign direct investments, inflation rate, foreign
remittances and gross domestic product
S I N G L E VA R I A B L E
MODEL NO

TH I S M OD EL W I LL S HO W T H E
CO NNECTI O N BETWEEN FO RE IG N
DI RECT IN VES TM ENT AND G DP
S I N G L E VA R I A B L E
MODEL NO

THIS MODEL WILL SHOW THE

CONNECTION BETWEEN
INFLATION RATE AND GDP
S I N G L E VA R I A B L E
MODEL NO

T H I S M O D E L W I L L S H O W T H E
C O N N E C T I O N B E T W E E N F O R E I G N
R E M I T TA N C E S A N D G D P Α =
C O N S TA N T / I N T E R C E P T
 For this research, secondary data
will be used

We will use data of previous 5

4 . 2 D ATA years and data would be taken
from WDI

Time series data is taken

4 . 3 VA R I A B L E S
• Gross domestic product will be dependent variable and Inflation rate , Foreign Direct Investment , 
foreign remittances as independent variables in this research project
4.4
METHODOLOGY
• The linear regression analysis will be used using MS Excel to
know about impact of independent variables on dependent
variable
4 . 5 D ATA
PROCESSING &
A N A LY S I S T O O L S
• MS Word will be utilized for documentation, and MS Excel
will be used in the study to apply linear regression analysis to
various variables
CHAPTER 5:
R E S U LT S A N D
DISCUSSION
 5.1 UNIT ROOT AND
S TAT I O N A R Y T E S T

The main advantage of ARDL is the capacity to avoid the classification of

variables into I or I since unit root pre-testing is not necessary

The limits test is based on the assumption that the variables I or I are
mutually being co-integrated

The ARDL approach may still need the unit root test to make sure that none
of the variables are integrated at order 2 or above)
 The next phase in developing the ARDL-
ECM model is the limits testing technique,
which requires suitable lag durations for
each variable

5.2
The ideal delay should be selected by the
OPTIMAL model itself
LAGS

I used the Micro fit software version 4.1 to

choose the optimum delays for each
variable based on the least AIC values
5.3 SHORT RUN
A N A LY S I S
• For decades, the relationship between variables has been modeled using the autoregressive
distributed lag 1 model in a single-equation time series configuration

• For decades, the relationship between variables has been modeled using the autoregressive
distributed lag 1 model in a single-equation time series configuration

• The ARDL model has a reparameterization for the process

• It is possible to make a conclusive inference using a limits testing approach without determining
whether or not the variables are integrated with order zero one, correspondingly I or I

• The coefficient of the ECM, which proves to be statistically significant, shows that the error-
correction process converges to the equilibrium path in less than a year
 The growth of Pakistan's GDP is significantly
and favorably impacted by FDI

5.3 SHORT
FDI spillover thereby benefits Pakistan's
RUN economy, as I have said
A N A LY S I S
The population's initial lag has a negative
impact even while the other two population
variables show advantages
 I wish to ascertain the impact of FDI on Pakistan's economic growth
from 1966 to 2014 in both the long- and short-term using the ARDL
technique

Short- and long-term effects of FDI on Pakistan's economy are typically

positive and significant
CHAPTER 6:
CONCLUSION The fact that the FDI inflow brings cutting-edge technology and
investments that bolster the national economy is one rationale for the
AND favorable impact

DISCUSSION
This report claims that Pakistan is still struggling to make the switch
from a labor-intensive to a capital-intensive economy

FDI inflow is more closely associated with governmental stability, the

absence of racial and religious conflicts, and democratic accountability
systems
CHAPTER 6: CONCLUSION AND
DISCUSSION
• Pakistan should increase exports of completed goods via infrastructure upgrades, the construction of
new roads, better transportation infrastructure, and the installation of state-of-the-art machinery that
would reduce local production costs
 Ahmed, J. Cyclical Properties of Migrant's Remittances to
Pakistan: What the data tell us

Aning, K Security, the War on Terror and Official

Development Assistance, Theme Paper prepared for the
REFERENCES project on Southern Perspectives on Reform of the
International Development Architecture

Boone, P, , “The impact of foreign aid on savings and

growth”, Mimeo, London School of Economics