The name “Foreign Direct Investment” normally brings in head a part of FDI to domestic investing. The significance of foreign direct investing ( FDI ) flows is good documented in literature for both the development and developed states. Over the last decennary foreign direct investing have grown at least twice every bit quickly as trade ( Meyer 2003 ) . As there is deficit of capital in the development states, which need capital for their development procedure, the fringy productiveness of capital is higher in these states. On the other manus investors in the developed universe seek high returns for their capital. Hence there is a common benefit in the international motion of capital.
The on-going procedure of integrating of the universe economic system and liberalisation of the economic systems in many developing states has led to a ferocious competition for inward FDI in these states. The controls and limitations over the entry and operations of foreign houses in these states are now being replaced by selective policies aimed at FDI influxs, like inducements, both financial and in sort. The selective policies non merely better the basicss of the economic system but they aim at pulling more foreign investings in the state.
Consequently during early 1980s, the authorities in Pakistan has initiated market-based economic reform policies. These reforms began to take clasp in 1988, and since than the authorities have bit by bit liberalized its trade and investing government by supplying generous trade and financial inducements to foreign investors through figure of revenue enhancement grants, recognition installations, and duty decrease and have besides eased foreign exchange controls ( Khan, 1999 ) .
In the 1990s, the authorities farther liberalized the policy and opened the sectors of Banking, agribusiness, telecommunications, energy and insurance to FDI. But, due to rapid political alterations and incompatibility in policies the degree of FDI remained low compared to other developing states. However, the clip series informations on FDI influxs and stocks has shown singular advancement over clip peculiarly during the reform period of the 90 ‘s ( see Table 1 ) .
Extensive empirical literature on determiners of inward FDI emphasizes the economic conditions or basicss of the host states relative to the place states of FDI as determiners of FDI flows. This literature is in line with Dunning ‘s eclectic paradigm ( 1993 ) , which suggests that it is the location advantages of the host states e.g. , market size and income degrees, accomplishments, substructure and political and macroeconomic stableness that determines cross-country form of FDI. Following this attack Nishat and Anjum ( 1998 ) , have estimated that political stableness, peaceable jurisprudence and order state of affairs, degree of proficient labours force and mineral resources and broad policies of the authorities attracted foreign investors in Pakistan.
However, it has been argued that the location specific advantages sought by foreign investors are altering in the globalizes more unfastened economic systems of today. Consequently, in his way breakage work Dunning ( 2002 ) finds out that FDI from more advanced industrialised states depends on authorities policies, crystalline administration and supportive substructure of the host state. However, really few surveies exist that have through empirical observation estimated the impact of selective authorities policies aimed at FDI.
The present survey adds to the bing literature by through empirical observation analyzing the response of FDI to selective policies, viz. revenue enhancement and duty policy, financial inducements offered and exchange rate policies in Pakistan. More specifically, the aim of this survey is to happen out the effectivity of these policies during the reform period. From this survey we would be able to see which specific authorities policy is pulling or deflecting FDI in Pakistan. This survey would be of involvement to policy shapers in many developing states where structural reforms are being implemented.
2. Literature Reappraisal:
An extended set of determiners has been analyzed in the literature on the determiners of FDI. Numerous empirical surveies ( Agarwal, 1980 ; Gastanaga et. al. , 1998 ; Chakrabarti, 2001 ; and Moosa, 2002 ) on the determiners of FDI lead us to choose a set of explanatory variables that are widely used and found to be important determiners of FDI. For illustration Markusen and Maskus ( 1999 ) , Lim ( 2001 ) , Love and Lage-Hidalgo ( 2000 ) , Lipsey ( 2000 ) and Moosa ( 2002 ) highlight how the domestic market size and differences in factor costs can associate to the location of FDI. To foreign investors who operate in industries characterized by comparatively big economic systems of graduated table, the importance of the market size and its growing is magnified. This is because they can work graduated tables economic systems merely after the market attains a certain threshold size. The most widely used steps of market size are GDP, GDP/capita and growing in GDP. The marks of these coefficients are normally positive.
The theoretical survey of the FDI goes as far back as Adam Smith, John Stuart Mill and Karl Marx. Since those early yearss the theory of FDI, s has evolved well. Macroeconomic theories of FDI can be classified into three groups: Neoclassic growing theories, Dependency school theories and Endogenous growing theories. Neoclassic growing theories began to emerge in the 1950s and 1960s following the Harrod Domar Growth Model ( 1939, 1946 ) . The Solow and Swan theoretical account and the Ramsey-Cass-Koopmans theoretical account made of import parts in this respect. Harmonizing to these theories, physical capital and homogenous labour are the lone factors of production, and human capital and technological alteration are considered exogenic. Incomes of states with same penchants and similar engineerings converge over clip taking to a long tally steady province.
hypertext transfer protocol: //www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/15-Apr-2009/Raza-says-banking-sector-has-tremendous-potential
As capital is thought to flux from parts with lower returns to those with higher return potency, FDI is thought to assist hapless states grow faster and catch up with more advanced states.
Pakistan has been ranked 34 out of 52 states in the World Economic Forum ‘s first Financial Development Report, which was released in Pakistan through the Competitiveness Support Fund ( CSF ) in December, 2008. The study is a comprehensive analysis of fiscal systems and capital markets in 52 states that explores cardinal drivers of fiscal system development and economic growing in developing and developed states and serves as a tool by which states can benchmark themselves and establishes precedences for fiscal system betterment.
Governor State Bank of Pakistan, Syed Salim Raza on Tuesday said that Pakistan ‘s banking industry has enormous potency for farther investing in the fiscal sector of the state. Inaugurating the 3rd subdivision of Barclays Bank in the metropolis at Khayaban-e-Shahbaz, Salim Raza said that continued involvement of international investors in the banking industry of Pakistan is a good portents and it reflects the huge potency of the state, specifically in the fiscal sector, says SBP statement.” Given the current economic scenario, where we are faced with many troubles, it is soothing to see enlargement in the fiscal sector, which is a manifestation of assurance of foreign investors, ” Raza said.
SBP Governor said that development in the fiscal sector over the old ages has led to increased competition, merchandise offerings, and variegation of concern activities which, in bend, non merely benefited local consumers but fiscal establishments as good.
Mohsin Nathani, Managing Director and Country Head, Barclays Bank Pakistan said: “Barclays is committed to puting in Pakistan with a long term position. In eight months since our launch we have established relationships with clients through our turning presence in the major metropoliss of Pakistan. Furthermore, we are offering our services in Mangla and Rawat as per our committedness to supply banking installations in rural areas.”
Barclays Bank, which commenced its operations in Pakistan last twelvemonth, is a portion of the planetary Barclays Group and employs over 500 people, functioning more than 9000 clients and clients across Pakistan through a web of 30 ATMs, nine subdivisions and 10 gross revenues and service centres.
The banking sector has gained dynamism, profitableness, reputability and strength. Deposit base rose to Rs 4.1 trillion and gross progresss to Rs 3.3 trillion by September 2008. Supported by the turning fiscal intermediation procedure, Bankss ‘ aggregative profitableness rose from Rs 63.3 billion in 2005 to Rs 73.3 billion by 2007 and Rs 46.0 billion for half twelvemonth 2008. Recapitalization and prudent loaning has lowered Bankss ‘ net non-performing loans ( NPLs ) to around 2.0 per centum. Banks ‘ capitalisation and quality of assets have helped raise the hazard weighted capital adequateness ratio to 12.1 per centum, good above the regulative lower limit of 8.0 per centum.
The recent planetary fiscal market convulsion and the current privately-owned construction of the domestic banking system, highlight the demand for a fiscal safety cyberspace to cover with contagious disease and systemic hazards. This includes depositor protection, liquidness and Lender of Last Resort installations in the SBP, an issue model to cover efficaciously with inevitable bank failures in ways that will beef up instead that weaken the banking sector as a whole, and improved coordination mechanisms with the GOP in instances of systemic jobs.
Fiscal Stability Review 2007-08 released by the State Bank of Pakistan
Pakistan ‘s banking sector has remained unusually strong and resilient, despite confronting force per unit areas emanating from weakening macroeconomic environment since late 2007, said the SBP study. While fiscal markets ( money market and foreign exchange market ) remained resilient to developments in the macroeconomic environment and functioned good in keeping fiscal stableness, the infliction of the floor of 9,144 points on the KSE-100 index in August 2008 has adversely impacted investor sentiments by efficaciously barricading the issue mechanism by and large taken for granted in a market based system.
The reappraisal said the banking system is on strong terms and has long term possible – a characteristic which has served to pull a significant sum of FDI in the sector, with established planetary fiscal establishments now active participants in the domestic fiscal sector. FDI increased from a mere $ 1 billion in 1999 to $ 8.4 billion in 2007.
Pakistan ‘s foreign militias hit a record high of $ 16.5 billion in October 2007 but fell to $ 6.6 billion in November, mostly because of a surging import measure. As the trade good monetary values rose and rising prices in Pakistan reached near 25 % , the State Bank of Pakistan was forced to raise its price reduction rates to every bit high as 15 % . However, there has been a dramatic diminution in the cost of imports such as oil during the last few months, spelling alleviation for Pakistan and other non-OPEC developing states. The monetary value of oil has dropped to about a one-fourth of what it was last summer.
The capital strength of the banking sector has increased well in recent old ages. The mean risk-based capital adequateness ratio ( CAR ) for all commercial Bankss strengthened from 11.4 % in 20
2000 to 13.7 % at end-2007 and 12.1 % by terminal June 2008, well above the needed minimal degree of 8.0 % . The end-2007 figure even understates the betterment that has taken topographic point, due to a major tightening of Bankss ‘ loan loss provisioning regulations in 2007. The strengthening comes both from new capital injections and retained net incomes.
hypertext transfer protocol: //economicpakistan.wordpress.com/2009/01/26/financial-services-sector/
3. Research Question and Objective:
O What is the function of the FDI in the economic system of the Pakistan?
O What are the chances for investors in banking sector in Pakistan?
O Are the current attempts of Govt. of Pakistan for the FDI are satisfactory?
O Is at that place any grade of balance between the Local investing and FDI in banking sector in Pakistan?
u To specify Banking sector issues in the universe and in the Pakistan ‘s banking sector.
u To analyse the chances of banking sector in Pakistan in the hereafter.
u To measure the increasing the demands of FDI and attempts of the Govt. of Pakistan to carry through these demands.
u To research the benefits and chances for investors in order to put in banking sector.
To develop the suggestions and recommendations on the footing of above research and findings
4. Research Perspective
What is your research position?
Descriptive research attack will be adopted because descriptive research is fundamentally the fact happening with reading and analysis of tendencies in events, attitudes, and facts in footings of their commonalty and potency for anticipation. The aim of descriptive research is to supply a unequivocal reply to a research inquiry. This sort of research typically involves activity analysis, normative study, instance, and historical or documental methods. My undertaking is besides a research inquiry i-e about the different banking sectors.
Is your research qualitative, quantitative or both?
As descriptive research will be used as described above, so for that ground qualitative research will be used because qualitative research is descriptive in which the research worker is more interested in procedure, understanding and intending derived from words, images and/or objects while on the other manus quantitative research involves the analysis of numerical informations which is available in the signifier of Numberss and statistics. ( Merriam, ( 1988 ) ; Creswell ( 1994 ) ) …
Is your research deductive ( theory testing ) , inductive ( theory data format ) or a mixture?
Research attack will be inductive because the procedure of qualitative research is fundamentally inductive in nature in which research workers construct constructs, hypothesis, and theories from inside informations. ( Merriam, ( 1988 ) ; Creswell ( 1994 ) ) …
Explain you research design
Cross-sectional research design will be used because it chiefly answers the research inquiries in the signifier of what, who, how many, where, how much? It entails the aggregation of informations on usually more than one instance at a individual point in clip to roll up a organic structure of quantitative and/or qualitative informations in connexion with two or more variables ( normally more than two ) , which are so examined to observe forms of association. ( Jewel talk notes, 2007 )
What data aggregation methods will you utilize and why?
As for the aggregation of the primary informations interviews will be conducted with the Banks and authorities sections in the Banking sector. For this intent, five Banks have been selected, ABN AMBRO, CITY BANK, MEZAN BANK, BARCLAYS BANK, BANK AL-HABIB. These Banks will be contacted by telephone or personal visit. At the clip of interview, undertaking will be to the full explained to the executive of the firm/department. Structured interviews will be used because every structured interview follows a written interview usher and secondly the telephone interviews are the convenient manner of reaching your respondents particularly for distance locations ( Jankowicz, 1999 )
Similarly for the aggregation of the secondary informations, informations from the industry periodicals will be supplemented by a reappraisal of diaries and books available on FDI in Pakistan. While deep survey and analysis of Government ‘s paperss on banking sector will supply the bulk of the informations about the FDI in banking sector.
What is your trying scheme?
As explained above that for the aggregation of the primary informations interviews will be conducted with the five Bankss in banking sector. These Bankss will be contacted by telephone or personal visit for the interviews and undertaking will be to the full explained to the executive.
What is the figure of your sample?
Five Bankss have been selected in banking sector including the ABN AMBRO, CITY BANK, MEZAN BANK, BARCLAYS BANK, BANK AL-HABIB.
Have you entree to your samples?
Companies will be contacted through the telephone in order to take the interviews every bit good as the writer has entree to these companies. Author has direct relationships with the industry and has contacted the companies sing the information required and companies are agreed to give interviews sing the undertaking merely.
How will your informations be analyzed and presented?
As described above that the structured interviews will be taken which are much like the questionnaires, and supply sequence inside informations. ( Jankowicz, 1999 ) So in order to analyse the collected informations, SPSS ( Statistical bundle for societal scientific disciplines ) will be used. It takes informations and generates end product in the signifier of tabular arraies and charts which provides clear thoughts.
5. Ethical Consideration:
BES Ethics Student Hand Book is read by me in inside informations and my undertaking will move upon the regulations and ordinance mentioned in this book. Second the Data Protection Act ordinances will be considered and followed while let go ofing any sort of informations throughout my undertaking.
6. Any Particular Resources or Access Required:
No particular resource or entree is required for my undertaking.
O Rui Albuquerque, 2000, “ The Composition of International Capital Flows: Hazard Sharing through Foreign
O Direct Investment, ” Bradley Policy Research Center Working Paper No. FR 00-08 ( Rochester, New York: University of Rochester ) .
O Blomstrom, M. , Kokko, A. and Globerman, S. ( 2001 ) , “The Determinants of Host Country Spillovers from Foreign Direct Investment: A Review and Synthesis of the Literature, ” in: Pain, N. ( ed. ) Inward Investment, Technological Change and Growth: The Impact of Multinational Corporations on the U.K. Economy, Palgrave Press.
O Agarwal, J. P. ( 1980 ) , “ Determinants of Foreign Direct Investment: A Survey. ” Weltwirtschaftliches Archive, 116, pp. 739-73.
O Asiedu, Elizabeth. ( 2002 ) , “On the Determinants of Foreign Direct Investment to Developing States: Is Africa Different? ” World Development 30:107-19.
O Chakrabarti, A. ( 2001 ) The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions, KYKLOS, 54, 89-114.
O Coventry University, Faculty of Business, Environment and Society ( 2006 ) . Postgraduate pupil manus book 2006-2007.
O Creswell, J. W. ( 1994 ) . Research design: Qualitative & A ; quantitative attacks. Thousand Oaks, CA: Sage Publications.
O Jankowicz, A. , D. ( 1999 ) Second edition. Business Research Projects. London: International Thomson Business Press.
O Merriam, S. B. ( 1988 ) . Case study research in instruction: A qualitative attack. San Francisco: Jossey-Bass.
O hypertext transfer protocol: //www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/15-Apr-2009/Raza-says-banking-sector-has-tremendous-potential ( Sited on 20th Aug 2009 )
O hypertext transfer protocol: //economicpakistan.wordpress.com/2009/01/26/financial-services-sector/ ( Sited on 15th Aug 2009 )
O hypertext transfer protocol: //www.sbp.org.pk/bsd/10YearStrategyPaper.pdf ( Sited on 18th Aug 2009 )
O hypertext transfer protocol: //www.pakboi.gov.pk/forign-invest.htm ( Sited on 24th Aug 2009 )
Net Inflow of Foreign Investment in Pakistan
Million US $
2009 ( P )
Foreign Private Investment
( 27.5 )
( 12.3 )
Foreign Direct Investment
( 142.4 )
( 41.6 )
of which Privatisation Returns
( 510.4 )
( 119.2 )
( 4.3 )
( 409.8 )
( 119.2 )
( 4.3 )
of which GDRs of MCB Bank
GDRs of UBL Bank
GDRs of Lucky Cement
( 100.6 )
TFCs of PMCL
International bonds of PMCL
( 100.6 )
Foreign Public Investment
( 544.1 )
( 1.0 )
( 0.2 )
( 544.1 )
( 1.0 )
( 0.2 )
of which GDRs of OGDC
Debt Securities *
( 544.1 )
( 1.0 )
( 0.2 )
( 26.7 )
( 12.0 )
Provisional informations For July 2009
Net sale/Purchase of Particular US $ bonds, Eurobonds, FEBC, DBC, Tbills and PIBs
hypertext transfer protocol: //www.sbp.org.pk/ecodata/NetinflowSummary.pdf
Sector Wise FDI Inflows ( $ Million )
Oil & A ; Gas
( 34.9 )
( 6.5 )
( 14.2 )
( 4.7 )
( IT & A ; Telecom )
( 16.9 )
41.6 % lessening in FDI Including Privatization Proceeds as compared to July-08
4.4 % lessening in FDI Excluding Privatization Proceeds as compared to July-08
Note: Pakistan ‘s Fiscal Year runs from 1st July till 30th June.
Foreign Investment influxs in Pakistan ( $ Million )
Note: Pakistan ‘s Fiscal Year runs from 1st July till 30th June.
hypertext transfer protocol: //www.pakboi.gov.pk/forign-invest.htm