Abstract
Developing countries in Asia mostly rely on FDI to acquire capital funds and advance techniques of production and business management. After adopting the liberalization policies in 1990’s, the inflow of FDI in Pakistan has increased many folds and likewise the export is also growing continuously. This paper explores the impact of foreign direct investment on Pakistan’s overall exports relation with FDI for the period 1971-2009. The Augmented Dickey Fuller Test (ADF), Dickey Fuller-GLS and Philip Perron tests are being applied to check the stationarity of the variables. The results depict significant association of foreign direct investment with over all exports in the long run. However world’ income is insignificantly linked with exports in the short run. The long run results are opposite to that of earlier work (Anwar, 1985). The possible justifications for difference in results are different methodologies used and the difference in time period. Real effective exchange rate, economic growth and relative prices show considerable association with export performance in the long run. The short run behavior show different results. Policy makers of Pakistan may focus on raising exports and apply policy tools through using channel of FDI by raising FDI in the long run. However, in the short run FDI may not be an effective tool.