Impact of Foreign Direct Investment on Power Sector”an Emperical Evidence from Pakistan

Abstract

This thesis examines the impact of Foreign Direct Investment (FDI) on Pakistan's power sector, focusing on its role in addressing energy shortages, influencing infrastructure development, and shaping the investment climate through energy policies. The study addresses key research questions, including how FDI has contributed to alleviating energy shortages, the effect of FDI-driven projects on infrastructure development, and the influence of Pakistan’s energy policies on FDI inflows. A quantitative research design, based on secondary data analysis, is employed to investigate the causal relationship between FDI inflows and key performance indicators (KPIs) of the power sector, including electricity production, sectoral GDP contribution, and the adoption of renewable energy. The research uses descriptive statistics, correlation analysis, regression analysis, and ANOVA to analyze the data and draw conclusions about the effect of FDI on the power sector. The findings reveal that while FDI inflows show a moderate correlation with electricity consumption and energy shortages, the statistical evidence does not confirm a significant causal relationship. Additionally, the impact of FDI on infrastructure development and energy policies remains inconclusive, suggesting that other external factors, such as government policies and energy efficiency initiatives, may play a more substantial role. Based on these findings, the thesis recommends future research that incorporates additional variables like policy changes, energy efficiency, and renewable energy investments. It also suggests expanding the dataset to include longer periods for better statistical significance and focusing on sector-specific FDI data to further explore the role of renewable vs. fossil fuel energy investments in Pakistan’s power sector.