Foreign Direct Investment and Debt Trap Diplomacy: A Case study of China Pakistan Economic Corridor

Abstract

Foreign Direct Investment (FDI) is a key driver of global economic growth, consisting of investment from one country into a company or institution in another country. China has recently become the leading investor in FDI, with its Belt and Road initiative aimed at promoting international trade and infrastructure development in host economies.China-Pakistan Economic Corridor (CPEC) has provided significant investment in energy and infrastructure, contributing to economic growth. However, critics have raised concerns about the potential for debt trap diplomacy as China's influence in Pakistan has increased, with approximately 30 % of Pakistan's external debt now owed to China. Similar issues have been observed in other countries, highlighting the multifaceted nature of the problem. Weak governance, institutional deficiencies, corruption, policy implementation, and transparency have been identified as contributing factors to countries' vulnerability to debt traps a midst Chinese FDI. Pakistan's experience with CPEC has also highlighted concerns regarding governance, project selection, transparency, and uneven distribution of benefits. Further debates will be necessary to assess the long-term impact of CPEC on Pakistan's economy and debt burden.