International Journal of Business Reflections, Vol 1, No 1 (2020)

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IMPACT OF SELECTIVE MACRO-ECONOMIC VARIABLES ON FOREIGN DIRECT INVESTMENT: PAKISTAN PERSPECTIVE

Muhammad Sohail Anwar, Qais Aslam, Hisham Yousaf

Abstract


 

The aim of this study is to measure the long-term relationship of FDI along with interest rates, inflation, market size, trade openness, terrorism, and the governance structure in Pakistan. This study uses the ARDL approach, to explore the long-run relation of FDI inflow along with selective macro-economic variables. Secondary data is collected from the World Bank database for the Pakistan economy, International Financial Statistics, IMF and the global terrorism database for the period 1980-2018 via the ARDL approach.The major findings show that the inflation rate, interest rate, market size, democracy, and trade openness have a positive and significant relationship with the dependent variable (FDI). Similarly, terrorism has a negative significant impact on FDI, while interest rate shows negative but insignificant behavior with FDI. On the basis of the bounds test, it is concluded that long-term equilibrating relationship exists between FDI and selected variables. The practical implication of the study is the use of finding in policymakers to make the policies that urge the FDI inflow, as well as foreign investors, to make the decision to invest in Pakistan.  This study has an originality value/ similarity index of 30%.

 

Keywords: Interest rate, Foreign Direct Investment, Terrorism

 


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