The Nexus of Terrorism, Electricity Load Shedding, Political Instability and FPI: An Empirical Evidence of Pakistan

Abstract

The term foreign portfolio investment (FPI) refers buying the money market instruments, bonds or shares in an overseas country for a shorter time frame. The FPI inflows are critical cash flows for Pakistan due to present uncertain economic and political environment. Due to the unstable political environment, electricity load shedding and terrorism; the market risk has increased significantly, therefore, the overseas investors are hesitant to invest for a longer time frame currently, but the government can attract them through FPI. This research aimed to determine the association of terrorism, political instability and electricity load shedding with FPI from 1991 to 2021 through ARDL and ECM models. The findings of the ARDL and ECM Models have shown that short run and long run co-integration does exist between the variables. Moreover, electricity load shedding is affecting portfolio investment during short run as well as long run time frame, whereas, the variable of political instability is affecting portfolio investment in short run only. Furthermore, the variable of terrorism is not affecting portfolio investment in long run or short run.