Dependency on Completely Knocked Down (CKD) Kits Imports and the Assembly Trap: An Empirical Study of Foreign Direct Investment (FDI) in the Automotive Sector of Pakistan

Roohina Imtiaz; Zahid Iqbal; Maryam Imtiaz

doi:10.46662/jass.v13i1.594

Roohina Imtiaz M.Phil Scholar, Department of Economics, Forman Christian College University, Zahoor Elahi Rd, Gulberg III, Lahore, Pakistan
Zahid Iqbal Associate Professor, Department of Economic, Forman Christian College University, Zahoor Elahi Rd, Gulberg III, Lahore, Pakistan
Maryam Imtiaz BSc Scholar,Management Science, Lahore University of Management Sciences, Sector U, DHA, Lahore, Pakistan

DOI: https://doi.org/10.46662/jass.v13i1.594

Keywords: Automotive Industry, Foreign Direct Investment (FDI), Completely Knocked Down (CKD) Kits, Pakistan Imports, Technological Spillovers, High-tech Components, Low-tech Components, Assembly Trap

Abstract

Pakistan has attracted foreign investment in the automotive sector with the objective of growth in the industry. As the industry matures, it should benefit from having vertical and horizontal linkages resulting in import substitution, self-reliance and export promotion. This paper empirically tests whether the expansion of FDI has actually been translated into automobile production, or whether production remains more closely associated with CKD imports. By employing a log-linear time series model using data from 2004 to 2025, this study highlights that the auto sector is in an ‘assembly trap’ due to heavy dependence on CKD kits. Recommended policies for the automotive sector to get out of this trap and benefit from FDI include improving local manufacturing standards, linking incentives to meet quality standards, strengthening domestic capital, and promoting competitive auto and auto-parts exports.