# Introduction he growth of world Foreign Direct Investment in recent years has created opportunities and challenges for economic development and growth, especially for developing nations like Pakistan. Employment creation, capital formation, managerial skills and technology, export promotion and market access are among the main benefits of FDI to the receiving host countries. The inflow of world Foreign Direct Investment increased from US $200 billion in 1993 to US $1.3 trillion in 2000. The share of developing countries as recipients of FDI flows increased considerably, reaching from 17.1% in 198817.1% in -199017.1% in to 21.4% in 199817.1% in -200017.1% in (UNCTAD, 2000)). Over the last decade, FDI has witnessed a dramatic increase, grew at least twice as fast as trade (Gorg and Greenaway, 2004;Meyer, 2003). In the mid-1980s, attraction of FDI has been one of the most important goals of many countries in the world. These economies not only liberalized trade policies and investment regime but also provided fiscal incentives to foreign investors through number of tax concessions and tariff reduction. During 1993-2003, 94% of 1718 regulatory changes made by countries all over the world that were favorable to Foreign Direct Investment (UNCTAD, 2006). Government policy changes made it easier for foreign investors to invest into more economic sectors. In 1990s, Government of Pakistan liberalized its trade policy and opened the sectors of energy, telecommunication, agriculture, banking and insurance to FDI which were not allowed before. Despite this, the level of FDI in Pakistan remained meager as compared to other developing countries due to rapid changes in political environment and inconsistent investment policies. However, FDI steadily increased in the post liberalization era One factor that has drawn attention lately is infrastructure availability in the host countries. Analysts agree that telecommunication has become an enabling industry for business and commerce in today's world. Maintenance of a stable telecom sector results in increased businesses and trade and thus increasing economic performance of the country. In the mid-1980s, utility of telecommunication sector were recognized in the world and it was considered as prerequisite for economic development. This study is mainly conducted to investigate the impact of telecommunication infrastructure on Foreign Direct Investment in Pakistan. The study is structured as follows: Section 2 provides the review of literature while analytical model is described in section 3. Section 4 discusses the analytical model's results followed by the concluding remarks in section 5. # II. # Review of Literature Vast empirical literature exists on the relationship between Foreign Direct Investment and quality of Infrastructure in developing countries. Most empirical studies in FDI literature have found infrastructure to be a robust and significant determinant of FDI. Several studies have used large sample of countries and have used different proxy variables for infrastructure quality e.g. telephone mainlines, total length of roads, electricity generation etc. to be significant determinant of FDI. For instance Asiedu (2002) # Analytical Model To build an econometric model, it is necessary to explain the relevance of variables that determined FDI entrance in Pakistan. Although there are many factors that affect FDI but four variables were taken under consideration in the present study. The following model is proposed for regression analysis: FDI = ? ? + ? 1 (INF) + ? 2 (LF) + ? 3 (MS) + ? 4 (OPEN) + ?. ( )1 The data comprises the period of 1990 to 2012 for Pakistan. The linkage between Foreign Direct Investment and Infrastructure is our particular concern. All the variables are treated as natural logarithmic form (ln). The relationship between FDI and its determinants is analyzed using ordinary least square method. The variables and source of data is in the following table: IV. # Results and Discussion Augmented dickey Fuller test developed by Fuller (1979 and1981). Results of ADF test are shown in Table 3. The results presented in table 3 show that all the series were non stationary at level. When differentiated one, all the series became stationary with 1% and 5% level of significance. Since all the series are integrated of same order, it becomes necessary to determine the possible co-integration relationship between them. For this purpose, we use Johansen (1988) model which was further extended by Johansen and Juselius (1990) to find out the long run relationship between the variables. Initially we need to set the optimal lag length for our model. According to Enders, SC test is thriftiest among others and it has specified one lag for our model. The results are presented in table 4. Year 2014 © 2014 Global Journals Inc. (US) ( ) # B The first procedure in time series data is to verify stationary of the series. This will be done through 5 show the existence of one cointegrating vector. This confirms the existence of long run relationship between Foreign Direct Investment and Infrastructure. As the long run relationship between the variables was reached, now we can estimate the coefficients of our variables by using ordinary Least Square method. Table 6 shows the results of OLS. Labor force variables are having negative relationship with FDI but the results were not found significant. The coefficient of our last variable is positive and has significant impact on FDI. It is concluded that if trade openness increases by one percent then FDI will also increase by almost 15%. The value of R2= 0.91 shows that 91% variations in dependent variable is explained by independent variables. Value of F-statistics is 46.06 and the probability is 0.000 which is less than one percent, this indicates the significance of our model. Moreover, DW statistic is 1.96 which shows that there is no autocorrelation exist in our model. # B The main interest of the present work was to study how telecommunication infrastructure is playing a role in attracting Foreign Direct Investments in Pakistan. Other variables namely Market size, Trade openness and Labor force were also taken under consideration along with infrastructure. The results indicated that there is long run relationship exist between Foreign Direct investment and infrastructure. One percent increase in infrastructure increases the level of FDI by almost 57%. This confirms the importance of Infrastructure in attracting Foreign Direct Investment in Pakistan. The availability of infrastructure contributes to productivity and economic development and thereby attract higher amount of FDI. The Government of Pakistan should pay key attention to a good infrastructure by maintaining policies consistent with macroeconomic growth. ![. The FDI inflows to Pakistan increased from US $119.6 million in 1975-1979 to US $3299.8 million in 1995-1999. The amount of FDI increased from US $485 million in 2001-2002 to US $5409 million in 2007-2008 (BOI, Pakistan).](image-2.png "") 1![Figure 1 : FDI share by major sectors (%), Pakistan As depicted from table1, telecom sector received 17% more FDI than Financial sector and almost 25% points more than Oil and Gas explorations in 2006-2007. Both of these sectors received greater amount of FDI a few years back. Similarly Textile, Power and IT received 1.2%, 3.8% and 1.2% FDI share during 2006-2007. Major Foreign Direct Investment in telecom sector of Pakistan has come from cellular mobile companies. In Pakistan, five cellular mobile operators i.e., Telenor, Pakistan mobile communication limited (PMCL/ Mobilink), PTML (Ufone), Warid and China Mobile are providing services. At the end of March 2013, there were 121.13 million mobile subscribers compared to 118.32 million subscribers last year.This study is mainly conducted to investigate the impact of telecommunication infrastructure on Foreign Direct Investment in Pakistan. The study is structured as follows: Section 2 provides the review of literature while analytical model is described in section 3. Section 4 discusses the analytical model's results followed by the concluding remarks in section 5.](image-3.png "Figure 1 :") ![used a sample of 71 SSA and non SSA countries, Root and Ahmad (1979) used a sample of 58 economies, Wheeler and Mody (1992) for 42 countries over the period 1982-1988, Kumar (1994) and Loree and Guisinger (1995) described positive role of infrastructure in attracting Foreign Direct Investment. Many studies show that infrastructure has different impact on developed and developing economies. For example Sekkat and Varoudakis (2007), Asiedu (2006), Iwanow and Kirkpatrick (2006), kok and Erosoy (2009) investigated that Infrastructure has a significant effect on FDI in developing economies. Some other similar studies also observed the positive role of Infrastructure in attracting Foreign Direct Investment (Rehman et al., (2011) for Pakistan, Li and Park (2006) for China). Most of the studies investigated positive and significant impact of Infrastructure on productivity and economic performance. Such as Aschauer (1989), Escribano and Guasch (2005), Straub (2011), Calderon and Serven (2010), Canning and Pedroni (2004), Easterly and Rebelo (1993), Jan et al. (2012) have checked impact of different dimensions of infrastructure on development of different countries and found positive effect of infrastructure on productivity and economic performance during different time periods. III.](image-4.png "") 1Telecom sector of Pakistan has attractedsizable investments after deregulation. Telecominfrastructure received more than US $12 billion duringthe last seven years. During last few years, Telecom-munication sector has emerged as major recipient ofForeign Direct Investment in Pakistan. FDI in telecomsector increased from US $6.1 million in 2001-2002 toUS $1.8 billion in 2005-2006. During 2006-2010, FDI intelecommunication sector exceeded 35% of total FDI inthe country. Table 1 depicts inflows of Foreign DirectInvestment in different sectors of Pakistan.Source: State bank of Pakistan 2SourceProxyVariablesWorld Development IndicatorsFDI (FDI in million US $)Dependent Variable:Foreign Direct InvestmentWorld Development IndicatorsINF (Mobile Cellular subscriptions)Explanatory Variables:InfrastructureState Bank of PakistanLF(Employed labor force)Labor ForceWorld Development IndicatorsMS (GDP in million US $)Market SizeWorld Development IndicatorsOPEN (%age of GDP)Trade Openness 3: ADF unit root testADF with 1st Diff.ADF at LevelVariables-3.23**-1.51FDI-3.65**-0.49INF-4.97*1.89LF-3.96*1.00MS-5.45*-2.37OPEN*&** Reject the null hypothesis of non-stationary at 1% & 5% level ofsignificance respectively. 4 5Hypothesized no.of CE(s)EigenvalueMax-Eigen statistics0.05 Critical ValueProb.**None*0.81556835.5000033.876870.0318At most 10.73050627.5353727.584340.0507At most 20.48389113.8901821.131620.3741At most 30.40897711.0438914.264600.1520At most 40.2724556.6796653.8414660.0598*denotes rejection of the hypothesis at 5% level of significanceResults of table 6Dependent variable: FDIVariablesCoefficientStd. Errort-statisticsProb.constant22.555020.06331.12410.2757INF*0.57590.08526.75200.0000LF-0.00015.3405-2.05990.0542MS-0.42260.8914-0.47410.6411OPEN*0.14680.02525.80880.0000R-Squared= 0.91F-statistics= 46.06Adjusted R-Squared= 0.89Prob (F-stat) = 0.0000Durbin-Watson stat= 1.96*indicates significance at 1%Results of table 6 present that INF which is thepivotal variable of our study is significant at 1%significance level and carry positive sign. The coefficientof INF represents that one percent increase in infras-tructure increases FDI by almost 58%. Market size and © 2014 Global Journals Inc. (US) Telecommunication Infrastructure and Foreign Direct Investment in Pakistan: An Empirical Study * Is Public Expenditure productive? DAAschauer J. Monetary Economics 23 1989 * On the determinants of foreign direct investment to developing countries: Is Africa different? 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