This study enhances the capacity of policy makers regarding FDI policies for attractiveness in South Asia. This study highlights the importance of political risk and policy uncertainties regarding the FDI inflows. The political risk and sustainable policy is essential for FDI inflows, in addition to fiscal incentives. This study recommended the importance of political factors and macro-economic factors in consideration the issues of FDI attraction for policy makers in South Asia.

This study examines the long-run relationship between Pak-rupee vis--vis US-dollar exchange rate, relative money supplies, real income, nominal interest rates, and real exchange rate over the period 1982Q2 to 2005Q4. The presence of cointegration between exchange rate, monetary fundamentals and relative real prices implies that monetary fundamentals and real factors play a significant role in determining the exchange rate. The results also ssuggestthat monetary fundamentals are still important in determining the exchange rate dynamics. Furthermore, during the reforms period the results of the monetary model appear to be highly consistent with the predictions of monetary model and short-run behaviour of monetary fundamentals is highly responsive. Based on the empirical findings, we derived two main conclusions: the monetary approach to exchange rate is still a valid representation in the determination of long-run exchange rates behaviour. Second, besides the monetary factors, real factors play a significant role in the determination of exchange rate in Pakistan.