Abstract
This study has examined the moderating role of Political Stability (PS) on the relationships between macroeconomic variables and the Foreign Direct Investment (FDI) inflows in Pakistan. For that purpose, this study used the authentic annual data for the period 1991 to 2011. The empirical analysis involved using the ADF test to check the stationary of the data, the EViews software and hierarchal regression using SPSS 19.0 statistical software package. The results of the study confirmed that that GDP growth rate, exports, imports and balance of payment have positive significant effects on FDI inflows in Pakistan. On the other hand, the inflation rate was not significant in determining the FDI inflows in the country. However, the GDP growth rate and Balance of Payment tends to be a significant determinant of FDI inflows when the moderating effect of the Political stability is accounted for. Based on the findings of this study, it is strongly suggested that political stability is crucial for the country’s domestic and foreign investment expansion in the future course of direction.
Highlights
The results of the study confirmed that that GDP growth rate, exports, imports and balance of payment have positive significant effects on foreign direct investment (FDI) inflows in Pakistan
In the modern era of 21st century, it has been vehemently emphasized that Foreign Direct Investments (FDIs) confer several economic such as, capital inflows adding to the reserves, improving the balance of payments, increasing the exports and causing exports-led growth, fostering innovation and modern technologies, new style of management skills, increasing the jobs and employment opportunities in the host country (Salman & Feng, 2010; Javed et al, 2012; Shahzad et al, 2012)
The present study, seeks to investigate why in Pakistan FDI inflows have declined over the years since 2008 and what policy strategy can be envisaged for the future course of direction
Summary
In the modern era of 21st century, it has been vehemently emphasized that Foreign Direct Investments (FDIs) confer several economic such as, capital inflows adding to the reserves, improving the balance of payments, increasing the exports and causing exports-led growth, fostering innovation and modern technologies, new style of management skills, increasing the jobs and employment opportunities in the host country (Salman & Feng, 2010; Javed et al, 2012; Shahzad et al, 2012). In the new economic order of the globalization era, the foreign direct investment(FDI) is considered to be a major contributor to the economic growth of any developed and developing economy (see, World Development Report, 2011). A rising trend of FDI inflows in the newly emerging segments of the developing world economy is attributed to the perception that such inflows trend to help in augmenting the productive resources and filling up a technological gap and overcoming capital shortage to facilitate the growth process of development in upcoming of the developing countries in recent years. In Pakistan, especially, the total investment (domestic and foreign investment) and corresponding capital formation has been going down in recent years 2008 to 2011(and even in 2012) and FDI inflows is at a much lower level as compared to the neighboring countries such as India, Sri Lanka, Malaysia and Bangladesh (UNCTAD, 2011).
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