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Review of global FDI and savings

According to the international research report, as a growth enhancing component, foreign direct investment (FDI) has received great attention of developed states in general and less developed states in particular in present decade. It has been a matter of great concern for various international as well as domestic economists that how FDI impacts economic growth of the host country. In the report it is also urged that in a closed economy, with no access to foreign saving, investment is financed solely from domestic savings. However, in open economy investment is financed both through domestic savings and foreign capital flows, counting FDI as well.

Foreign Direct Investment enables investment-receiving (host) states to attain investment levels beyond their capacity to save. It is also recorded that over the last couple of decades FDI has remained the largest form of capital flow in the developing states far surpassing portfolio equity investment, private loans, and official assistance. In the perspectives of macroeconomics, economists recorded that FDIs are efficient form of usage of private savings in the process of funding economic development and the in lessening the gap between the planned investment and the local savings. Furthermore, it is significant contribution of FDI in overcoming the gap of foreign trade of host country. In the developing countries like Pakistan, FDI presently reached at US$1.737 billion in July-June (2018-19) as against to the investment of $3.47 billion registered during the corresponding period previous year, explaining a pessimistic growth of 50 percent.

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Statistics showed that on yearly basis, FDI in the country also declined to $130.4 million as compared to $309.6 million registered during the same month of previous year.

Statistics also explained that net foreign investment from China posted a negative growth as it declined to $546.8 million during the period under review as against to the investment value of $2.004 million registered during same period of last year. The foreign investment from US plunged from $160.9 million in July-June (2017-18) to $88.6 million in same period of fiscal year, while foreign investment from UK also declined from $305 million to $185.2 million during FY2018-19. Moreover, the FDI from UAE, however, jumped from negative $3.3 million in the same period of previous year to $102.5 million in the same period of year under review. From Turkey, official statistics also revealed that FDI also raised to $73.8 million as against to the investment of $29.8 million during the corresponding period of the preceding year, whereas investment from Switzerland declined to $21.2 million in the period under review as against to the investment of $79.4 million previous year.

 

Investment from Saudi Arabia also rose from $3.8 million previous year to $19.2 million during July-June 2018-19. Netherlands invested $68.4 million during the corresponding period of current year. Investment from Hong Kong also declined decreased to $130.1 million in July-June (2018-19), whereas Germany’s investment increased to $50.5 million this year from $34.7 million previous year. No doubt, FDI brings many advantages for international investors among which, the most important are: savings in transport costs, lower labor costs, available infrastructure, savings in customs costs and contribution on imported goods, closer position to the customers, the possibility of quick and efficient delivery, and availability of information about preferences and possibility for fast adoption of products in accordance with market requirements.

Pakistan receives net FDI ($ Million)
Country2012-132013-142014-152015-162016-172017-18Jul-Jun FY19 (P)
China90.6695.8319.11,063.601,211.701,812.60546.8
UK633157169.6151.6215.8307.5185.2
USA227.1212.1223.913.244.6136.388.6
Hong Kong242.6228.5136.293.317.24.1130.1
Switzerland149209.8-6.558101.879.421.2
U.A.E22.5-47.1213.6109.7120.510.9102.5
Italy199.497.6115.4105.460.556.651.9
Netherlands-118.45.5-34.529.9457.6100.268.4
Austria53.353.824.842.721.727.47.6
Japan30.130.171.135.457.759.8117.3
Turkey0.57.943.416.8135.629.873.8
Others-73.247.6-288.2585.7301.9467.4343.7
Total1,456.501,698.60987.92,305.302,746.803,092.001,737.10

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