Impact of Terrorism on Foreign Direct Investment in South Asian Countries: Evidence from Heterogeneous Panel Analysis

Abstract

This research investigates the impact of terrorism and peace on foreign direct investment (FDI) in South Asian countries comprising eight economies. The study initially examines the effects of terrorism, GDP, inflation, and trade openness on the FDI of South Asian countries. Subsequently, it explores the influence of peace, GDP, inflation, and trade openness on the FDI of the same economies. The sample data covers a time frame from 2011 to 2021. The panel-regression framework is employed as the primary technique for data analysis. Moreover, to examine the integration among the variables under consideration, Pedroni cointegration and FMOLS regression methods are applied. The outcomes of the articles support the initial aim of the study by noting down a considerable nexus of both peace and terrorism as well as relative economic proxies in driving FDI of South Asian economies. The result strongly suggests that terrorism in these countries is one of the pioneering factors for predicting FDI. The study concludes that an increase in terrorism declines the flow of FDI, while an improvement in peace enhances FDI. Likewise, other indicators such as inflation, trade openness, and GDP also contribute to changes in FDI.