Abstract:
The study examines the impact of foreign direct investment (FDI) inflows on Pakistan's
macroeconomic framework, emphasizing improved capital efficiency and technological advancements.
Utilizing a Computable General Equilibrium (CGE) model within the GTAP framework, it evaluates
the effects of technology-driven FDI on key sectors, including manufacturing, exports, and demandoriented industries. Key findings indicate that priority sectors such as food and beverages, light
manufacturing, and heavy manufacturing experience the highest GDP growth from FDI-induced
technological upgrades. Sectors like light manufacturing, metals, textiles, and heavy manufacturing
demonstrate significant export increases and reduced reliance on imports. Conversely, demand-oriented
sectors such as communication and retail trade drive higher imports. Manufacturing and exportoriented sectors help reduce the trade deficit, while retail trade, communication, and financial services
contribute to its increase. The study concludes that attracting FDI to manufacturing and export-driven
sectors is crucial. However, foreign investors tend to focus on market-seeking sectors. To encourage
efficiency-seeking FDI in productive sectors, the government should enhance the business environment,
lower costs, deregulate, and ensure a level playing field.
