Abstract
Foreign direct investment (FDI) location decisions are generally sensitive to degree of openness to international trade in a host country. The purpose of this paper is to examine the impact of openness on attracting FDI in a low-income country like Pakistan. Autoregressive distributed lag (ARDL) approach to cointegration with an error correction model based on ARDL is used to determine the relationship among variables. Time series data of 32 years (1974-2005) is used with annual frequency. This study observes strong positive impact of openness in attracting FDI in short run and as well as in long run for the case of Pakistan. The objective of this study is to highlight the role of openness in attracting FDI inflows in Pakistan by using some of the important determinants of FDI. Highlighting openness impact on FDI will guide Pakistan policy makers on FDI.