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Title: Foreign Direct Investment inflow and Governance Relationship in Pakistan: A Comparison with South Asian Countries
Authors: Shahid, Muhammad
Keywords: Bussiness & Management
Issue Date: 2021
Publisher: Gomal University, D.I.Khan.
Abstract: The study establishes governance impact on foreign direct investment and the reverse phenomenon itself resolve terrorism, threats from militant groups, security challenges and governance problems of the host country. The emerging phenomenon of FDI effect on governance has not debated frequently in economics and has not adequate literature in empirical research. So this study will contribute to potential knowledge and literature on this subject matter and answer the raised question whether a foreign direct investment itself helps in creating governance of Pakistan or not. The study analyses the governance effect on foreign direct investment and the opposite emerging dimension of FDI effect on governance has also been examined along with other most relevant control variables. The Dickey Fuller, Augment Dickey Fuller and Phillip Perron tests were employed to check the stationary order of variables. These tests confirm that no variable is at second difference which is the compulsory condition of Auto Regressive Distributive Lag approach. In the presence of mixed order of stationary, the tests suggest most appropriate econometric model is Auto Regressive Distributive Lag (ARDL). The ARDL to co integration method was employed on time series dataset over the period from 1984 to 2015 to estimate the results. Bound test was applied to test the long run relationship or cointegration among variables. The Error Correction mechanism was used to estimate the short run results. In error correction model, the negative sign of adjustment coefficient shows highly significant of the model which converges towards equilibrium while the positive value of adjustment coefficient diverges the model away from equilibrium. The stability test showed no structural breaks in the model. The Commutative sum of Recursive Residual and COUSUM sum of square graphs lines are in between 5% critical bound limits in diagrams excludes structural breaks risks from the model. But when the graphs lines cross the 5% critical bound limit values the model has to face the structural breaks. The diagnostic tests as Ramsay's RESET test for correct functional form, Lagrange multiplier test for serial correlation and Durbin Watson test for autocorrelation were employed to estimate the model efficiency. The study reveals the governance is statistical significant and contributes positively in raising the FDI. The other variables human capital and infrastructure also cause FDI inflow but misery conditions of the host country affect FDI negatively. The other important finding is that when human capital is operated at domestic level with the other control variables, it affects FDI positively. The economic real GDP growth rate role in attracting FDI is insignificant in generating FDI inflow to the host country. The second estimated model results of study have exposed the social, political, economic factors as poor value system, poor institutions exist in the country which has raised many questions about governance problems in the form of threats from militant groups, securities challenges have to face the foreign investors. Further the mega projects foreign investment urges the home land country to ensure the security risks related to foreign investment. The mega investment projects of the foreigners forced Pak Army to provide guarantee for terror free Pakistan and ensure security for the game changer development projects. In this context the Military initiated the operation Zarb-e-Azb and Radul Fasad in 2014 and Rah-e-Nijat and announced that they (Pak Army) would fight to achieve the end objective of the terror free Pakistan irrespective the costs of operation. These mega projects of huge foreign investment contribute the new paradigm and dimension of research that FDI mega projects urges the domestic country to make investment in governance and new concept that FDI itself generates the governance in recipient country. The estimated results of study are different from the previous research results that FDI affects the governance positively when the country has the ability of manicuring power otherwise vice versa results. The other finding of research concludes that the infrastructure and human capital is operated with advanced foreign investment; unable to perform with them makes governance problems. The infrastructure and human capital affect negatively the governance to host country. The more and more expenditures are made on infrastructure, human capital and on poverty reduction but the poor governance has not been improved. The major reasons behind this is lack of transparency, poor monitoring, poor accountability, deployment of development funds and weak contract enforcement on human capital and government spending from which the human capital investment (expenditure on education and health) results of study are some different from previous studies. Hence human capital effect on economic growth negatively and these factors create poor governance in the country. Further bi directional causality of Grangers Test was also applied to test the relationship between FDI and governance confirms the short run unidirectional causality from log of GOV to log FDI exists but the revise causality from log FDI to log GOV is not present. I have gone through a lot of literature but not found adequate and complete empirical studies on this topic. This research study has used broad composite index of governance comprises of 12 indicators introduced by International Country Risk Guide (ICRG). ICRG supplies time series and panel data of different countries not without cost. The emerging concept of foreign investment itself generate governance structure to the home land country such as implement on enforcement of contracts, support the government stability and urges the domestic government to remove security threat challenges and develop the international relationship and provide well managed frame order and training of management to country people. This new paradigm of research will contribute and facilitate economic researchers, foreign investors, domestic investors and policy makers of the host country as well as foreign policy makers.
Gov't Doc #: 25841
Appears in Collections:PhD Thesis of All Public / Private Sector Universities / DAIs.

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