Nexus between Pakistani Firm's Profitability and Foreign Direct Investment

Abstract

Globalization and Foreign Direct Investment (FDI) have a very strong association. FDI increases competition, externalities, domestic firm profitability, technology transfer, knowledge transfer, manpower training, market networking, and economic benefits. This study examined how foreign direct investment affects Pakistani banks' profits. The analysis used 1996–2015 time series data. EViews estimated the research model. The study uses the autoregressive model for finding any association between the response variable, profitability of domestic companies, and the net FDI inflows (percentage of GDP), FDI (foreign direct investment), and four response variable lags. Return on Assets (ROA) quantified domestic firm profitability. The model indicated and the coefficient showed that ROA and FDI and FDI per capita have a positive significant association, but ROA and ROA (-4) in the host country have a negative significant link. Pakistani firms will profit more as FDI increases.