Impact of Foreign Direct Investment (FDI) Inflows on Equilibrium Real Exchange Rate of Pakistan

Abstract

This study aims to analyze the impact of foreign exchange inflows on equilibrium real exchange rate of Pakistan for the period 1993 M7 to 2009 M3 through behavioral equilibrium real exchange rate (BEER) approach. The BEER approach uses econometric technique of cointegration to establish a behavioral link between the real exchange rate and relevant macroeconomic fundamentals. The study shall conclude that massive foreign direct investment inflows and workers ‘remittances have significantly appreciated equilibrium real exchange rate of Pakistan. The purpose of this paper is to investigate the impact of foreign exchange inflows in Pakistan in the form of FDI and workers’ remittances on equilibrium real exchange rate of Pakistan.

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