Foreign Direct Investment, Economic Growth and Terrorism Events in Pakistan: A Co-Integration Analysis

Abstract

The main objective of present study is to examine co-integration and causal relationship between FDI, terrorism and economic growth in Pakistan. The study used annual data for the period 1981-2015.The results show that a negative correlation holds among FDI, elementary school enrollment index (EEI), terrorism and economic growth. Bi-variate Co-integration analysis shows that terrorism events and economic growth are co-integrated. Similarly, terrorism attacks have relationship with EEI and FDI. The Granger causality analysis indicates that terrorism is Granger cause of economic growth. Furthermore, there is unidirectional relationship between FDI and GCF. Similarly, TE have unidirectional relationship with EEI. These findings are also supported by impulse response function analysis. The study suggest that the government should open more schools for children and also should control corruption, unemployment and terrorism to overcome this dilemma. The findings also suggest that foreign investment must be augmented through suitable policies. Improved antiterrorism institutions not only helpful to eliminate terrorism but also have subsequent effect on performance of multinational corporations to get greater benefits of FDI inflow in Pakistan.