Impact of Taxation, Inflation and Interest on Foreign Direct Investment (An Empirical Study of Pakistan)

Abstract

Foreign Direct investment plays a vital role in economy’s growth, especially in developing countries. It helps in growing industrial sector, healthcare, education and creates employment. The goal of any country is to attract FDIs; to do so, law and policymakers reframe their tax policies, grants tax incentives and exemptions in taxable components. Also, authorities try to ensure economic growth and maintain monetary policy stable to attract FDIs. This study analyzed the determinants of Foreign Direct Investment (FDI) net inflows by examining key economic factors, including corporate tax rate, direct tax rate, inflation rate, and interest rate. The analysis was conducted using descriptive statistics, covariance and correlation tests & regression analysis providing comprehensive insights into the relationships between these variables. Time series data is used spanning over 2005 to 2024. The data was obtained from the following sources i.e. World Development Indicator (WDI), Economic Survey of Pakistan and Academic Journals. The study concludes that variables have less dependency upon each other. That shows that there are other strong factors that affect FDI inflows in Pakistan. In this regard, further studies are suggested by using other variables such political stability, trade openness, infrastructure development, exchange rate fluctuations and economic growth.