An Impact of Foreign Direct Investment on Real Gross Domestic Product

Abstract

The objective of this article is to measure the impact of Foreign Direct Investment (RFDI) on Real Gross Domestic Product (RGDP) covering the sample period 1988- 2019 employing time-series data. Late 1980s has been the significant policy change in overall Nepalese economy. In this respect, first co-integration analysis was introduced to capture long-run relationships among variables. Second, to capture short-run relationship among variables Pairwise Engel Granger test, and Error Correction Mechanism (ECM) developed. On the paper RFDI contributes to RGDP, the coefficient is positive as well as significant at 5 percent level in the short run only. In the long run RFDI is not significant for the Nepalese RGDP growth. The research finds remittance, domestic capital and export are important tools for RGDP growth, and these variables are positive and significant at 5 percent level. All the stability and diagnostic test of the model has no symbols of misspecification and residuals are normally distributed, homoscedasticity and no serially correlated.