Does Higher Misery Index Dry Up Foreign Direct Investment Inflows in Pakistan? An ARDL Bound Testing Approach

Abstract

Inflows of foreign direct investment are one of the main drivers of globalization and play a significant role in narrowing the investment-savings gap in developing nations. This study's main goal is to examine how the Misery Index has affected FDI inflows to Pakistan between 1980 and 2021. The ongoing study also looks at how the money supply and exchange rate affect FDI inflows. Error Correction Model is utilized to analyze observed short-run relationships, while the long-run relationship is examined using the Autoregressive Distributed Lag approach to co-integration. In the short run, the Exchange Rate and Misery Index are the key FDI factors. The money supply and exchange rate are also important long-term factors of FDI. The study suggest that administration of Pakistan should entirely interest-free exchange rate rule sterile of fixed exchange rates thus as to expand foreign direct investment and provide to GDP, this is because profitable capability of any FDI is constructed on exchange rate constancy.