Abstract
This Study is an attempt to analyze the need and economic impact specific empirical assessment of foreign
capital inflow and the other macroeconomic variables including gross national product, inflation, domestic
saving, investment, export, import, interest rate and foreign exchange rate. The study utilizes ADF unit root
test for stationarrity, Johansen’s cointegration test for long run relationship, and VECM and Granger
causality test for short run relationship for the data period of 1980-2012. In results, all the variables are
detected stationary at first difference via ADF unit root test. Moreover cointegration is also found by
Johansen cointegration approach among the variables in the model. The long run coefficient reveal that
GNP; interest rate, foreign exchange; growth rate have significantly non decreasing effects on FCI however
inflation, and imports impede it. Based on these results, the study recommends both fiscal and monetary
policies to take initiative steps for financial liberalization by increasing interest rate; boosting international
trade; stabilization of exchange rate, and alleviation of inflation rate and imports.
