CPEC as Driver of Foriegn Direct Investment (FDI) in Pakistan: An Opportunity to Reshape the Economy

In macroeconomics literature foreign direct investment (FDI) is thought as a significant determinant of economic development, especially in the developing countries like Pakistan. FDI is not just considered as the source of capital formation but it also triggers the technological transformation, value addition and innovation to improve the managerial skills and market access. These all are critically important for higher growth trajectory. The joint project of China Pakistan Economic Corridor (CPEC), which is worth around US$ 59 billion as of now, would give a new turn to the FDI inflows to Pakistan from all over the world especially from the People Republic of China (PRC) through evolution in the development of large-scale manufacturing and conducive business environment. The aim of this study is to investigate and to identify the key determinants and barriers of FDI inflows to Pakistan. Moreover, this study evaluates the potential impacts of CPEC project on charm of FDI to Pakistan through different sectorial contributions and provides brief policy recommendation. It is concluded that FDI inflows are the need of the hour for Pakistan to capitalize the potential impact of CPEC and to overcome the domestic savings-investment gap with the uplift of business conduce infrastructure development. Historically, the fundamental factors behind the low FDI pattern of Pakistan, is the lack of hard infrastructure such as national connectivity, energy etc. while the development and availability of such infrastructural facility, itself required a massive FDI, in case of Pakistan due to high fiscal deficit and other macroeconomic issues. This vital role is being played by CPEC, while enlargement of large-scale infrastructure. Moreover, the long-term plan of CPEC is to explore further venues for attraction of FDI in Pakistan.