RASTA: Local Research Local Solutions – Investment & Exports (Volume XVIII)

ABSTRACT

East Asia’s Foreign Direct Investment (FDI)-driven learning model offers significant and practical lessons to developing economies, such as Pakistan, on pursuing a path towards sustainable export-led growth. FDI stands as an important critical catalyst for economic growth, especially in export-driven strategies, as demonstrated by the success of East Asian Economies. These nations have effectively utilised FDI to drive technological advancements, bolster local industrial capabilities, and foster innovation. In contrast, Pakistan faces significant challenges in attracting impactful FDI due to barriers such as underdeveloped infrastructure, limited domestic investment, and insufficient human capital. The study categorises East Asian experiences into cohorts, examining their diverse policy approaches ranging from Japan’s post-war reconstruction to China’s dominance in manufacturing. Insights from these economies underscore the effectiveness of liberal market policies, strategic investments in infrastructure, and the importance of creating an attractive business environment to stimulate FDI inflows, along with domestic investment. A favourable set of mediating factors, essential for absorbing foreign technologies, including effective legal systems, greater market freedom, and a robust domestic investment environment, amplifies FDI spillovers. The FDI spillovers facilitate the rapid acquisition and adoption of technology and expertise in host countries, leading to significant productivity gains.