Governance as a Stimulator for Foreign Direct Investment in Pakistan: A Non-Linear ARDL Approach

Abstract

This paper aims to emphasize governance as the driving force for foreign direct investment in the case of Pakistan. The research occupies times series data over the time frame 2000 to 2021 for analysis. Based on unit root approximation, the research employs the non-linear autoregressive distributed lagged modeling (NARDL) approach for empirical investigation. The research regresses governance effectiveness, population growth, domestic savings, and remittances on foreign direct investment. According to NARDL statistics, an increase in governance effectiveness will lead to a 45 percent increase in foreign investment inflows, while a decline in governance effectiveness may incur a 39 percent decline in foreign investment inflows. The study concludes that foreign direct investment in developing economies like Pakistan largely depends on governance and its effectiveness. Besides, population growth sustains a strong static influence on foreign investment inflows. All remaining variables such as domestic savings and remittances have also confirmed their statistical significance.