Impact of Foreign Direct Investment, Inflation, and The Interest Rate on Stock Market of Pakistan

Abstract

This study aims to conduct an empirical examination into the influence of foreign direct investment, inflation, and interest rates on the stock market performance, while exploring their interconnections. The objective is to determine whether these factors are correlated. Additionally, the research seeks to analyze the impact of foreign direct investment, inflation, and interest rates in the evolving political landscape of Pakistan's stock markets. The study utilizes the State regression method, employing annual time-series data spanning from 2000 to 2020 for Pakistan, to ascertain empirical relationships among the variables. The results reveal a positive correlation between foreign direct investment and stock market performance. Conversely, the inflation rate and interest rate exhibit insignificant relationships with stock market performance. These findings can serve as valuable insights for government policymakers, aiding in the formulation of strategies to attract foreign investors and establish a secure and lawful business environment. Furthermore, the research suggests the implementation of monetary policies to mitigate inflation and interest rates. The focus of this endeavor is exclusively on the development of the stock market in Pakistan, emphasizing the role of foreign direct investment and other variables. The study highlights a pronounced correlation between FDI and stock market performance.