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BUSINESS RESEARCH METHODS


SUBMITTED TO:
MISS SOBIA NASIR

SUBMITTED BY:
ROLL NUMBER:
MC10225

NAME:
MUHAMMAD USMAN ASAD

SUPERIOR UNIVERSITY |RAIWIND ROAD, LAHORE

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THE IMPACT OF FOREIGN DEBTS, FOREIGN DIRECT INVESTMENT AND INFLATION ON THE ECONOMIC GROWTH OF PAKISTAN
DEPENDENT VARIABLE
Economic growth of Pakistan

INDEPENDENT VARIABLE
Foreign debts, Foreign direct investment and Inflation Foreign debts

Foreign direct investment

Economic growth of Pakistan

Inflation

JUSTIFICATION:
The economic growth of Pakistan is the economy of third world country and it depends a lot of investment and also due to lack of resources it has to bear the burden of a lot of foreign debts due to which these factors very important in the economy of Pakistan. The model focuses on the impact of these three factors on the economy of Pakistan.

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ACKNOWLEDGEMENTS
In the making of this project of BRM on the topic of quantitative research methods I would like to thank ALLAH ALMIGHTY without whose blessings I would have ever been able to complete this project. I would also like to thanks our course in charge for business research methods Miss Sobia Nasir for her sincere cooperation and assistance and guidance that she has given me during the making of this project.

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I dedicate our project to

Allah
Who has created me as crown of creation and enable me to learn.

My Parents
Who always appreciate me in every step To my teachers at all stages of study specially

Who always guided me in right direction and developed my personality as a useful citizen for the society and beyond them, to all of my friends from whom we learned much and complete of our tasks. And finally,

My Class Fellows
I am really thankful to my class fellows who always give me their favors and motivate me in right direction. It was great fortune for me to study with so competent students. What I learn in this whole program they contribute as much as my teachers.

SUPERIOR UNIVERSITY |RAIWIND ROAD, LAHORE

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TABLE OF CONTENTS Page number


Flow chart of literature..7 Executive summary8 2.1 Introduction.9 2.1.1 Purpose of the study...9 2.1.2 Significance of the study9 2.1.3 Previous studies..9 2.1.4 Future studies..9 2.2 Literature review...10 2.3 Methodology.12 2.3.1Sample size..12 2.3.2 Reliability and validity...12 2.3.3 Ethical consideration..13 2.4 Limitation and Delimitation..13 2.5 Target audience.....13 2.6 Hypothesis.13 2.7 Sector.13 2.8 Independent variables13 2.8.1 Inflation.13 2.8.2 Foreign direct investment..13 2.8.3 Foreign debts.14 2.9 Dependent variable..14 2.9.1 Economic growth of Pakistan14
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2.10 Relationship between variables..14 2.10.1 Relationship between foreign debts and economic growth of Pakistan..14 2.10.1 Relationship between foreign direct investment and economic growth of Pakistan...14 2.10.2 Relationship between inflation and economic growth of Pakistan..14 Conclusion...14 Reference.16

SUPERIOR UNIVERSITY |RAIWIND ROAD, LAHORE

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FLOW CHART OF LITERATURE:

INTRODUCTION

FOREIGN DIRECT INVESTMENT, FOREIGN DEBTS, INFLATION CONCLUSION

ECONOMIC GROWTH OF PAKISTAN

SUPERIOR UNIVERSITY |RAIWIND ROAD, LAHORE

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Executive summary:

he model relates to the business research method and the aim of this model is to make the thesis. The independent variables are foreign direct investment, foreign debts and inflation and the dependent variable is economic growth of Pakistan. The independent variables have negative impact on dependent variables because due to these independent variables the economic growth of Pakistan badly affected. In literature review there is discuss all the researches which has been done in past years. There is also discussing the methodology, ethical consideration, limitation and delimitation, model, hypothesis, reliability and validity. If there is increase in foreign direct investment and decrease foreign debts and inflation the economic growth of Pakistan automatically improves. The government of Pakistan should take keen interest to improve especially these two variables that is inflation and foreign debts. If these two variables improve foreign direct investment automatically improves. Foreign countries will take keen interest in invest their money in Pakistan.

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2.1 Introduction:

conomic growth of any country depends on basically internally or externally factors. The economic growth of Pakistan depends on these factors such as foreign direct investment, foreign debts, inflation, politically stability etc. Foreign direct investment, foreign debts and inflation have impact on economic growth of Pakistan because whole economy of Pakistan depends on especially foreign debts and inflation. If government of Pakistan improves these independent variables the economic growth of Pakistan is automatically improves. If the economic growth of Pakistan improves the exchange rate also stable. If exchange rate is stable it means the overall economy of Pakistan is better. 2.1.1 Purpose of the study: The purpose of the study is to check the impact of foreign direct investment, foreign debts and inflation on economic growth of Pakistan. The main purpose of this study is confirmed or verifies the impact of independent variables on dependent variable. Another purpose of this study is to check the relationship between these variables. 2.1.2 Significance of the study: This study has great significance or importance because economic growth of Pakistan is based on these three independent variables which are foreign direct investment, foreign debts and inflation. Due to poor economic policies by the government of Pakistan faces the pitiable and meager conditions. If government improves these deprived conditions then economic growth of Pakistan can automatically improved. 2.1.3 Previous studies: It has discussed in the previous studies in the articles that independent variables are fluctuated with respect to dependent variable in past years. In 1970s and 1980s due to politically instability and afghan war the economic growth of Pakistan is badly affected. In 1990s again there is again fluctuation in the economic growth of Pakistan due to political instability. The researcher discussed that the amount of foreign direct investment (FDI) inflows increased from $ 245 million to $ 4,273 million from 1990 to 2006. According to Chenery (1996) the main reason of foreign debt in developing counties is to fulfill lack saving investment gap. In 1972-73 foreign debt was 4385 US Million Dollars which rose to 29630 US Million Dollars in 2005-06. 2.1.4 Future studies: In future if the political condition will be stable then there is good impact of independent variables such as foreign debts, foreign direct investment and inflation on dependent variable which is economic growth of Pakistan. If there is politically instability in future then there is
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difficult for the government of Pakistan to survive because there is too much foreign debts burden on government of Pakistan. So there should be political stability for the good economic condition of Pakistan. Otherwise there is difficult to control the inflation rate which affects badly on economic growth of Pakistan. If there is increase in inflation then it is also badly affected on economic growth of Pakistan of Pakistan because prices of goods and commodities will be rise. If there is rise in prices of goods and commodities the foreign debts also increase because government would take loans from other countries. If there is increase in foreign debts and inflation then foreign direct investment also decreases because no one country wants to invest their money in Pakistan.

2.2LITERATURE REVIEW:
Due to inflation the prices of goods and commodities increases. If there is rise in prices of goods and commodities then there is difficulty for Pakistan government to maintain the economic growth of Pakistan. So Pakistan government should control the inflation to maintain the economic growth of Pakistan. Inflation also devaluate the currency of Pakistan. If there is let down the currency of Pakistan the foreign debts routinely rise because government tale loans from other countries. According to Bruno (1995:38) persistent inflation is likely to be similar to burning once you get the tradition, it is very thorny to run off a deterioration compulsion. According to Gillman et al. (2002), pedestal on a panel data of Organization for Economic cooperation and Development (OECD) and Asia-Pacific Economic Cooperation (APEC) countries, point out that the lessening of high and intermediate inflation to restrained single digit figures has a noteworthy positive effect on enlargement for the OECD countries, and to a slighter degree for the APEC countries. According to Fischer (1993) consequences point toward that inflation decreases growth by plummeting outlay and output growth. Cohens (1993) examined the association between exterior arrear and investment of rising countries for 1980s. The study demonstrates that there is a slight effect of level of stock of debt on investment. The author disagreed that a real stream of net transfers influences venture. The study further reveals that actual service of debt crowded out outlay. In 1982-1989 Perasso (1992) using data from twenty middle-income severely indebted countries explored the relationship between foreign debts and economic growth. The study shows that appropriate within strategy have stronger blow on increasing investment and growth in highly indebted countries than decreasing debt-servicing responsibility. Sawada (1994) used yearly time series data for illustration period from 1955-1990 has shown that deeply indebted countries have debt beetle difficulties. Since their present external debts are above the anticipated present value of the potential expands.
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Export-adjusted plan and the effect of FDI on regular growth rate for the period 1970-85 for the cross-section of 46 countries as well as the secondary-taster of countries that are deemed to pursue export-oriented strategy was found to be positive (Balasubramanyam et.al, 1996) and significant but not significant and some times negative for the sub-set of countries following inward-oriented strategy. Accordingly (Sanchez-Robles, 1998) discovered experientially the correlation among municipal communications and monetary expansion in Latin America in the period 1970-1985. She also found an activist and noteworthy blow of FDI on the economic growth of the countries of this area. Iyoha and Milton (1999) examine the relationship between exterior debt and financial augmentation for Sub-Saharan countries during the period 1970-1994. The study shows that external debt has unfavorably consequence investment. The study also summated out that lessening in debt hoard would lead to improvement in investment and economic growth. The authors worried that obligation of these countries should be absolved to stimulate economic growth. Karagl (2002) scrutinized rapport between economic growth and external debt overhaul for turkey during 1956-1996. The author used multivariate co-integration procedures. The study shows that there survives an unenthusiastic relationship between external and economic growth in the long run. Granger causality check consequences explained a uni-direction causality running from debt service to economic growth. Abdelmawla and Mohamed (2005) investigated the impact of external debt on economic growth during 1978-2001 of Sudan. The study reveals that external debt and inflation adversely affected the countrys economic performance. The study also shows that export earnings havesignificantly positive impact on economic growth. Khan and Senhadji (2001) examined the price rises and growth association moderately for industrial and developing countries. The authors reassess the topic of the subsistence of Threshold effects in relationship between inflation and growth, using econometric techniques originally developed by Chan and Tsay (1998) and Hansen (1999, 2000). They used the data set for 140 countries from 1960 to 1998. Their results strongly proposed the existence of doorstep away from which inflation applies a pessimistic effect on growth. Inflation level below the doorstep level has no effect on the expansion, while inflation velocities over the threshold have a historic negative effect on growth. Sweidan (2004) scrutinizes whether the liaison between inflation and fiscal growth has a structural cut-off point effect or not for the Jordanian economy from the juncture between 1970 and 2003. He finds that this relative leans to be positive and significant below an inflation rate of 2-percent and the structural division effect arises at an inflation rate equal to 2-percent. Beyond this entry level inflation affects economic growth negatively.
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Mubarik (2005) approximations the verge plane of inflation for Pakistan using a yearly data locates from the period between 1973 and 2000. He engaged the Granger Causality test as a submission of the verge representation and finally, the appropriate sensitivity analysis of the model. His estimation of the brink model suggests that an inflation rate beyond 9-percent is detrimental for the economic growth of Pakistan. This in swivel, put forwards that inflation rate below the guessed level of 9-percent is favorable for the economic growth. Furthermore, the sympathy psychiatry performed for the strength of the doorsill model also verifies the same level of entrance inflation rate. Hussain (2005) practically estimate the entrance level of inflation in Pakistan using annual data for the period 1973-2005. Via using typical econometrics method to guess the threshold effect and proposes that aiming inflation beyond a range of 4-6% will be deterrent to economic growth. He recognized no threshold rank of inflation for Pakistan. These results are in sharp contrast to the answers of Mubarik (2005) where inflation threshold level for Pakistan is at 9%. So according to him, for prolongable economic growth, inflation must be fall in the range of 4 and 6%.

2.3METHODOLOGY:
The contact of foreign debt on economic growth has been discovered in the occurrence of Pakistan for the period 1972-2005. The data has been got from International Financial Statistics, World Bank, Pakistan Economic Survey (various issues), and World Development Indicators (WDI 2005). I should survey the bankers, economist, fbr and sources of finance ministry and structured questionnaire will be design. In this model the quantitative research method will be used. In this quantitative research method I will do the economic survey through questionnaires and interviews. This economic survey will be collected from the economists, bankers, fbr, finance ministry etc. through questionnaires and interviews because when the independent variables such as foreign debts and inflation on dependent variables such as economic growth of Pakistan the banking sector, fbr , finance ministry etc. which is badly effected. If the economic condition will be better the foreign direct investment will increase. The main cause of the study is to review / enumerate the collision of FDI on economic growth, in order to attain the desired aim, other independent variables which are assumed naturally to pressure the economic growth will be included in the model. 2.3.1Sample size: The data is collected last 20 to 25 years. The quantitative technique methods will be used in this assignment because this is quantitative research. After it the SPSS is will be used to analyzed data. 2.3.2Reliability and Validity: In the reliability the data is collected from more than one source. The cron batch apla test is applied to tally the figures of inflation rates, amount of foreign direct investment and foreign debts that it can be verified.
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2.3.3Ethical consideration: In ethical consideration The formal language will be used There is no any discussion which has no ethics The discussion should be on system There should be no personally discussion All the in order is provided is harsh poise The data should be confidential The questionnaires and interviews should be private

2.4LIMITATION AND DELIMITATION:


The data is limited to the Lahore because the data will collect only from Lahore. The delimitation of model is boundaries of Pakistan because data can be collected from any area of Pakistan.

2.5TARGET AUDIENCE:
Sector: Economic growth of Pakistan Unit of analysis: Bankers, economists

2.6HYPOTHESIS:
H1: There an association between foreign direct investment and economic growth of Pakistan Ho: There no association between foreign direct investment and economic growth of Pakistan H1: There is an association between foreign debts and economic growth of Pakistan Ho: There is no association between foreign debts and economic growth of Pakistan H1: There is an association between inflation and economic growth of Pakistan Ho: There is no association between inflation and economic growth of Pakistan

2.7 SECTOR:
Through foreign debts and inflation the economic growth of Pakistan is affected but due to foreign direct investment the economic growth of Pakistan is improved because there is increase in employment. The service sectors especially banks are badly affected through foreign debts and inflation because due to foreign debts and inflation the banks provide too much loans to government and other sectors but most of the times these loans have not been recovered. So banks face so many problems to recover their money.

2.8 Independent variables:


The independent variables are inflation, foreign debts and foreign direct investment which affect the economy growth of Pakistan. 2.8.1 Inflation: If inflation is increase it affects the economic growth of Pakistan. If there is more inflation the buying power will be less and hence the economy will not be stable. 2.8.2 Foreign direct investment: Foreign direct investment is long term participation by country B to country C. It includes management, know how, corporation etc. it has three types that is
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Inner foreign direct investment External foreign direct investment Provide of foreign direct investment

2.8.3 Foreign debts: Foreign debts are the amount of debts taken from the foreign countries or the financial institutions like World Bank, International monetary fund (IMF).

2.9 Dependent variable:


The dependent variable is economic growth of Pakistan 2.9.1 Economic growth of Pakistan: . Economic growth of Pakistan means how much growth of Pakistan is increase or decrease when the foreign aid or foreign investment in comes in the Pakistan.

2.10 Relationship between variables:


Followings are the relationship between variables. 2.10.1 Relationship between foreign debts and economic growth of Pakistan: The relationship between foreign debts and economic growth of Pakistan is negative because foreign debts badly affects on overall economic growth of Pakistan. 2.10.2 Relationship between foreign direct investment and economic growth of Pakistan: The relationship between foreign direct investment and economic growth of Pakistan is positive because foreign direct investment activist affects on overall economic growth of Pakistan. 2.10.3Relationship between inflation and economic growth of Pakistan: The relationship between inflation and economic growth of Pakistan is negative because inflation badly impinges on overall economic growth of Pakistan.

Conclusion:
Foreign debts and inflation has negative brunt and foreign direct investment has positive brunt on economic growth of Pakistan. If government of Pakistan takes keen interest to recover the
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foreign debts and stable the inflation rate then the economic growth of Pakistan can be improved. There is only need of government attention. If government pays full awareness to foreign debts and inflation the economic growth of Pakistan can be improved. The economy of Pakistan has grown up by 6.5% since 2003 and the share of GDP in investment increase from 17% in 2001-02 to 20% in 2005-06 which shows positive sign for the economic growth of Pakistan.

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REFERENCE:
1. Iyoha and Milton (1999) External debt and economic growth in sub-Saharan African Countries: An econometric study AERC Research Paper 90 African Economic Research Consortium, Nairobi. 2. Abdelmawla and Mohamed (2005) The Impact of External Debts on Economic Growth: An Empirical Assessment of the Sudan: 1978-2001 Eastern Africa Social Science Research Review - Volume 21, Number 2, June 2005, pp. 53-66 3. Bruno, M. and W. Easterly (1996). Inflation and Growth: In Search of Stable Relationship. Federal Reserve Bank of St. Louis Review, Vol. 78, No.3. 4. Fischer, S. (1993). The Role of Macroeconomic Factors in Growth. Journal of Monetary Economics, Vol.32: 485-512. 5. Gillman, M., M. Harris, and L. Matyas (2002). Inflation and Growth: Some Theory and Evidence. Berlin: 10th International Conference on Panel Data. 6. Sawada, Y. (1994) Are the heavily indebted countries solvent? Tests of inter temporal borrowing constraints, Journal of Development Economics, 45, pp. 325-337. 7. Cohen, D. (1993). Low Investment and Large LDC Debt in the 1980s The American Economic Review Vol 83, pp 437-449 8. Perasso, Giancarlo (1992): Debt Reduction versus Appropriate Domestic Policies, Kyklos, Cilt 45, Say 4, pp. 457-467 9. Iyoha and Milton (1999) External debt and economic growth in sub-Saharan African Countries: An econometric study AERC Research Paper 90 African Economic Research Consortium, Nairobi. [16] Karagl (2002) 10. Sweidan, O. D. (2004), Does Inflation Harm Economic Growth in Jordan? An Econometric Analysis for the Period 1970-2000, International Journal of Applied Econometrics and Quantitative Studies, Vol.1, No. 2 11. Mubarik, Y. A. (2005), Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan, State Bank of Pakistan Research Bulletin, Vol. 1, No. 1 12. Hussain, M. (2005), Inflation and Growth: Estimation of Threshold Point for Pakistan, Pakistan Business Review, Vol. 7, No. 3 13. Khan, M.S, Senhadji, A.S. and Smith B.D, (2001), Inflation and Financial Depth,IMF Staff Paper.
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