Muhammad Ajmair, Ashiq Hussain
Abstract: The basic objective of this study was to check the impact of foreign direct investment on sectoral components of GDP (Agricultural Sector, Industrial Sector and Services Sector). Time series annual data from 1950 to 2010 was used and Engle Granger Cointegration (Two Step) Method was employed to get results. Augmented Dickey Fuller test was applied to check the stationarity of variable. All variable except foreign direct investment (FDI) were stationary at first difference and FDI was stationary at level. Regression analysis was consisted on two steps. In first step long run relationship was checked which was positive and significant. Residuals (ect) were generated and checked for unit root. Error correction term (ect) was stationary at level, it is the precondition of existence of long run relationship between dependent and independent variables. In second step, error correction model was estimated to check the short run relationship. Significant relationship was found between dependent and independent variables as the coefficient of error correction term (ect) was negative. Negative coefficient is the precondition of existence of short run relationship.
Keywords: FDI, GDP, Agricultural Sector, Industrial Sector, Services Sector, Cointegration