DO PULL AND PUSH FACTORS AFFECT FOREIGN PORTFOLIO INVESTMENT: EMPIRICAL EVIDENCE FROM PAKISTAN

Abstract

Individual investors seeking alternatives across the countries are more likely to use Foreign Portfolio Investment (FPI). FPI helps host countries to expand economically. The present study investigated the impact of pull and push factors on FPI. Time series data has been taken from 1990-2021. The FPI was the response variable, and other macroeconomic indicators like inflation and economic growth, real interest rate, exchange rate and imports, money growth, and population are key affecting variables. To calculate short-run and long-run dynamics with proper lag durations, to avoid autocorrelation and endogeneity, Augmented Dickey-Fuller (ADF) Test, Vector Error Correction Model (VECM), Johansen co-integration test have been used. The results revealed that exchange rate, population, imports, and money growth favorably and robustly impact FPI. In contrast, real interest rates and inflation have a negative impact on FPI in Pakistan. This study has practical implications for regulators by advising and encouraging investors to make better FPI choices while macroeconomic variables are altering. These findings will guide policymakers and investors in making informed decisions. It is recommended that researchers explore possible investment variables to clarify the importance of other factors better. The government must create a conducive business environment where capital can flow from within or out of the country. So that foreign portfolio investment can increase in Pakistan.