The Effectiveness of Export, FDI, Human Capital, and R&D on Total Factor Productivity Growth: the Case of Pakistan

The current paper ascertains the effectiveness of exports, foreign direct investment (FDI), R&D, and human capital on total factor productivity (TFP) growth in Pakistan. The Tornqvist expression of TFP growth has been applied in the first stage, whereas ordinary least squares (OLS) have been used in the second stage to search for possible determinants of TFP, in the long run, using data from 1991 to 2021. According to the results, physical capital and human capital have emerged as the most contributory factors toward output growth in Pakistan. The positive contributions of TFP in the growth of output have been observed during 2001-2005 and 2016-2021. Further, TFP growth is observed to be positively correlated with growth in physical capital, human capital, and FDI. According to the empirical results, physical capital, labor, and human capital have emerged as highly significant determinants of TFP, whereas exports possess weak significance albeit having favorable signs. Contrary to the finding of other studies in many other countries, R&D and FDI have no significant impact on TFP in Pakistan, which is mainly due to the stagnant level of R&D and fluctuating FDI during recent years. The study recommends the use of human capital as a strategic tool to promote growth in output as well as TFP on a sustainable basis in Pakistan.