Effect of Macroeconomic Variables on the FDI inflows: The Moderating Role of Political Stability: An Evidence from Pakistan

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.

The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies

“…In addition, findings of GDP per capita shows positive and significant effect on FDI flows attraction in European transition economies, which is consistent with those of Shahzad & Al-Swidi (2013), Alshamsi et al (2015), Boateng et al (2015) Neumayer & Spess (2005, Kurul and Yalta (2017). Moreover, there are conclusions that unemployment plays a insignificant role on the attraction of FDI flows, in accordance with studies conducted by Strat et al (2015), Aktar, Demirci & Öztürk (2009), Saray (2011.…”

“…While the authors Al- Egger & Winner (2005), after a study of 73 developed and least developed states for the period 1995-1999, point out that there is a positive relationship between corruption and FDI, so corruption is a stimulus for FDIs. Shahzad & Al-Swidi (2013) suggest that the growth of the GDP ratio has a positive impact on the inflow of Foreign Direct Investment in Pakistan. This research was conducted for the time period 1991-2011.…”

The effect of corruption, trade openness and political stability on foreign direct investment: Empirical evidence from BRIC countries

“…Political stability and power distance in country are determinant factors of political risks (Shahzad and Al-Swidi, 2013;Shahzad et al, 2012). Developing countries are able to attract more FDI inflows if they more politically stable as argued by Shahzad et al (2012).…”

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;…”

“…It has been extensively known in theory and practice that foreign direct investment in a country often leads to many economic advantages such as foreign exchange improvement, technology transfer, organizational framework and managerial skills, improvement in the balance of payment, job creation and promotion of the export of the countries (Shahzad et al, 2013;UNCTAD, 2011;Crespo & Fontura, 2007;Gorg & Greenaway, 2004;Brooks et al, 2003). Few famous economists have claimed that FDI can also lead to the maximization of domestic investment via its linkages (both forward and backward) in the process of encouraging both innovation and economic growth of the country (Badr & Ayed, 2015;Musibah et al, 2014;Omri & kahouli, 2014;Temiz & Gokmen, 2014;Shahzad et al, 2013;Awan et al, 2011;Brooks et al, 2003) The financial and economic systems integration through social and cultural aspects in a phenomenon known as globalization has transformed the world into a small village. Globalization has introduced opportunities for success, but the inherent risks associated with it have also been multiplied.…”