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Relationship Between FDI, Terrorism and Economic Growth in Pakistan: Pre and Post 9/11 Analysis

Abstract

The study examines cointegration and causal relationship between FDI, terrorism and economic growth in Pakistan using quarterly frequencies for the period 1988–2010. For empirical analysis data is divided into two sub-periods i.e. pre 9/11 (1988–2001) and post 9/11 (2002–2010) periods. The results show that long run cointegration holds between FDI, terrorism and economic growth. Granger causality results indicate that there is bidirectional short and long run causality between economic growth and FDI for both sub-samples. These findings are supported by variance decomposition and impulse response analysis. The findings suggest applicability of modernization theory to explain FDI and economic growth relationship. The results also reveal that terrorism has a deteriorating impact on FDI.

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Notes

  1. However, none of the time series should be I (2) as the calculated F-statistics cannot determine cointegration in this case.

  2. ARDL bound testing procedure can also be specified by using \(\Delta \ln G_{t}\) and \(\Delta \ln TR_{t}\) as dependent variables. However, we have not presented these specifications to save space and given the fact that our interest is primarily in Eq. (6) only.

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Correspondence to Syed Jawad Hussain Shahzad.

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Shahzad, S.J.H., Zakaria, M., Rehman, M.U. et al. Relationship Between FDI, Terrorism and Economic Growth in Pakistan: Pre and Post 9/11 Analysis. Soc Indic Res 127, 179–194 (2016). https://doi.org/10.1007/s11205-015-0950-5

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  • DOI: https://doi.org/10.1007/s11205-015-0950-5

Keywords

  • FDI
  • Terrorism
  • Economic growth
  • Cointegration

JEL Classification

  • C13
  • F21