An Empirical Investigation on The Effect of Business Environment Factors on The FDI Inflows in Pakistan: The Moderating Role of Political Stability

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 Business and Economic Research ISSN 2162-4860 2012 www.macrothink.org/ber 157 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.

Impact of Foreign Investment in the Yemen's Economic Growth: The Country Political Stability as a Main Issue

“…Such reports confirm the undesirable effect of poor exchange rate and GDP, and corruption on the FDI inflows in Yemen. Many reasons have also been suggested for this weak contribution by the previous studies (Hela & Bouras, 2014;Musibah et al, 2014;Shahzad & Al-Swidi, 2013;AL-Shebami et al, 2013;Shahzad et al, 2012;Almsafir et al, 2011;Mahdi et al, 2011;Chami et al, 2007;Omran & Bolbol, 2003) to include the following: 1) Lack of attention placed on improving the level of openness in Yemen;…”

“…For example, Wheeler & Mody (1992) and Singh & Jun (1999) report that political instability and administrative efficiency significantly impact FDI inflow. Many other studies (Younis et al, 2008;Shahzad et al, 2012) on the other hand, have established that political instability have significant impact of FDI inflow. Because investors are sensitive to the political stability of the countries, it is assumed that the political stability can assist in attracting FDI inflows.…”

“…The PS has a significant impact on macroeconomic balance and in the making favorable environment for business in a country. Mainly, political risks rely on PS and good governance (Shahzad et al, 2012;Husain, 2009). Latest research carried out by Shahzad et al (2012) accounts that political stability encourages forcing greater inflows of FDI in the developing countries.…”

“…Mainly, political risks rely on PS and good governance (Shahzad et al, 2012;Husain, 2009). Latest research carried out by Shahzad et al (2012) accounts that political stability encourages forcing greater inflows of FDI in the developing countries. On the other hand, Yemen has been facing an unending political instability.…”

Determinants of Export Performance in the Wake of the Global Financial Crisis: Evidence from South Asia

“…This result is supported in some existing studies. Shahzad, et al (2012) have shown political stability to be the single most important factor in determining export growth and FDI inflows into the country, while factors such as infrastructure have an insignificant impact. Daly and Muzart (2007) show that while access to finance is positively related to SME export growth in Chile, reforms in business environment has had limited impact.…”