Abstract
This study has examined the moderating role of Political Stability (PS) on the relationships between microeconomic variables, business environment variables and the Foreign Direct Investment (FDI) inflows in Pakistan.This study confined to the annual data for the period from 1991 to 2011 obtained from the authentic sources.The empirical analysis involved using the ADF test to check the stationary of the data, the EViewssoftware and hierarchal regression using the SPSS statistical software package. The statistical results of the study confirmed that that degree of openness, the Labor minimum wage and Infrastructure were significant predictors of FDI inflows. On the other hand, other variables such as GDP growth rate and the rule of law were not significant in determining the FDI inflows in Pakistan.However, the GDP growth rate tends to be a significant determinant of FDI inflows when the moderating effect of the Political stability is accounted for. These findings, thus, strongly suggested that political stability is crucial for the country’s domestic and foreign investment in the future course of direction.
Highlights
In the contemporary era, it has been widely discussed theoretically and practically that Foreign Direct Investment (FDI) confers numerous economic benefits to the host countries by providing foreign exchange, innovation, capital, transfer of technology, managerial skills, job expansion and increasing the exports of the country (Salman &Feng, 2010; Javedet al,. 2012)
This study has examined the moderating role of Political Stability (PS) on the relationships between microeconomic variables, business environment variables and the Foreign Direct Investment (FDI) inflows in Pakistan.This study confined to the annual data for the period from 1991 to 2011 obtained from the authentic sources.The empirical analysis involved using the Augmented Dickey Fuller (ADF) test to check the stationary of the data, the EViewssoftware and hierarchal regression
India had received large amount of FDI inflows in the last few years as shown in figure 1 compared to Pakistan.This may be attributed to the obvious fact that Indian policy makers have been continually making concerted efforts to pose India as an attractive destination for foreign direct investment
Summary
It has been widely discussed theoretically and practically that Foreign Direct Investment (FDI) confers numerous economic benefits to the host countries by providing foreign exchange, innovation, capital, transfer of technology, managerial skills, job expansion and increasing the exports of the country (Salman &Feng, 2010; Javedet al,. 2012). Since foreign direct investment (FDI) is assumed to be a major source of foreign capital for industrialization and growth process in a developing country, it is virtually regarded as an engine of growth and economic expansion in the global economic arena. The IMF and the World Bank, favor FDI rather than foreign Aid (FA) as a vital source of initiating or supporting development process, planning and programming by developing country under the dynamic move of globalization in the 21st century (UNCTAD, 2011). On programmatic consideration, these are some basic reasons for developing countries to attract foreign direct investment.
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