Asymmetric and Symmetric Link between Quality of Institutions and Sectorial Foreign Direct Investment Inflow in India: A Fresh Insight Using Simulated Dynamic ARDL Approach

Abstract

This study explores the bicausality between institutional quality and FDI inflow both aggregated and sector-wise, i.e., the agricultural, manufacturing, and tertiary sectors in the Indian economy, by applying simulated autoregressive distributed lag (SARDL) dynamic new techniques, an extended variant of orthodox ARDL and NARDL. The study confirms that aggregated and sectorial FDI are enhanced by adequate institutional quality, and similarly, FDI promotes quality institutions. The nexus between institutional quality and FDI inflow is an inspiration for India to compete with developed economies by enhancing its institutional quality. The study observes cointegration and bidirectional causality between institutional quality and aggregated FDI.

The Impact of Institutional Quality on Sectoral Foreign Direct Investment in Pakistan: A Dynamic Simulated ARDL Approach

“…Reference [30] suggested a simulated ARDL approach to investigate the short-and long-term association between dependent and independent variables. It can simulate, estimate, and plot counterfactual change prediction in a regression in the dependent variable while keeping the other variables constant.…”

“…Gross domestic product, human development index, and trade openness alongside the main variables have favorable and significant implications for institutional quality and FDI inflow, both collectively and separately, implying that for improvement in FDI inflow in Pakistan, a revised open policy for more development of the institutional quality process is necessary. Maintaining an open and transparent policy, as well as improving the quality of Pakistan's institutional system, is also critical for the country's FDI attraction [30].…”