The Dynamic Relationship between Political Instability, FDI, and Economic Growth in Pakistan: A Time-Series Study

Abstract

This study analyzes the relationship between economic growth, corruption, terrorism, rule of law, and foreign direct investment in Pakistan using time series data for the period of 2000-2020. In order to examine the correlation between these variables, the research utilizes various methods such as descriptive statistics, unit-root tests, auto-regressive tests, and a GARCH (1,1) model which includes explanatory variables in the mean equation. The results indicate that rule of law and foreign direct investment have a positive and significant impact. The study suggests that institutional quality plays a vital role in promoting economic development. However, the presence of ARCH effects indicates that the model may not be the best fit for the data, and further research is needed to improve the model's performance. Further research is needed to gain a more complete understanding of the complex relationships among various factors affecting economic growth. In general, this research adds to the existing body of literature regarding the correlation between institutional quality and economic growth. It underscores the significance of sound governance and robust institutions in promoting economic development, with a particular focus on Pakistan. The study emphasizes the vital role that good governance and strong institutions play in fostering economic growth.