International Journal of Business and Management Review Vol.2, No.4, pp.21-35, September 2014 Published by European Centre for Research Training and Development UK (www.eajournals.org) 21 FACTORS AFFECTING FOREIGN DIRECT INVESTMENT IN PAKISTAN Prof. Dr. Abdul Ghafoor Awan Dean, Faculty of Management and Social Sciences, Institute of Southern Punjab, Multan- Pakistan Waqas Ahmad MS Scholar, Department of Business Administration Institute of Southern Punjab, Multan- Pakistan Pervaiz Shahid MS Scholar, Department of Business Administration Institute of Southern Punjab, Multan- Pakistan Jahanzeb Hassan MS Scholar, Faculty of Management Sciences, University of Central Punjab, Pakistan E-mail ABSTRACT: Foreign Direct Investment (FDI) plays a crucial role in speeding up the development and economic growth of a country. In developing countries rely on FDI to promote their economy as they face capital shortage for their development process. The strong growth performances experienced by Pakistan economy greatly depends on the FDI. FDI generates economic growth by increasing capital formation through the expansion of production capacity, promotion of export and creation of employment in Pakistan. FDI inflows of Pakistan started fluctuating from 1990s to 2012 and this high volatility of Pakistan FDI inflows drew the researchers’ attention to examine the factors affecting FDI inflows in Pakistan by using the annual data from year 1988-2012. Multiple linear regressions model is applied to study the relationship between explanatory variables and explained variable. Empirical results show that gross capital formation, exports, gross national income, have significantly and positively affect Pakistan FDI inflows. Other than that, external debt also significantly affects Pakistan FDI inflows but its relation with FDI is negative. Imports of Pakistan are the final goods & its relationship with the FDI inflow in Pakistan is negative. It is significant affect on FDI in Pakistan. Due to the war conditions in Pakistan the military expenditures increases sharply which shows the foreign investors disinterest in Pakistan from last few years and our results also shows a significant and negative relationship between military expenditures and FDI inflow in Pakistan. KEYWORDS: FDI, GCF, GNI, IMP, EXP, EXDT, MEXP INTRODUCTION Foreign direct investment is appraised of foreign ownership of operating assets, such as factories, mines and lands. Increasing foreign investment can be used for instance one measure of rising economic globalization. During last thirty years, there has been a fabulous growth in global Foreign Direct Investment (FDI). In 1981 the total stock of FDI equaled only 6.59 percent of world Gross Domestic Product (GDP), while in 2004 the share of GDP had increased to close to 23.52 percent according to the United Nation Countries of Trade and Development Report (UNCTAD 2004).This has been taken place concurrently due to large growth in