Impact of Political and Economic Institutions on FDI Inflows: evidence from South Asian countries
Abstract
The current study examines the effects of political and economic institutions on the FDI inflows for the selected 4 South Asian countries including Pakistan, India, Bangladesh and Sri Lanka. For this, Panel data is employed for the period 1984--2020. Panel unit root test, Pedroni Cointegration test, Dynamic OLS (DOLS), and Panel Error Correction Model (PECM) methods have been used to extract the results. The empirical findings revealed the significant and positive effect of economic institutions on the inward FDI of South Asian countries. However, political institutions are found to be insignificant for inward FDI. The outcomes of the VECM and the panel cointegration approach confirmed the presence of a cointegrated relationship among the variables. The short-run effects are found to be insignificant. Therefore, Policymakers should make certain policies by taking into account the heterogeneity between economic and political institutions. They need to pay attention to the steps through which the institutions can be made stronger and more effective so that they can make the environment more favorable to attract the maximum number of FDI projects into a specific region.
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Copyright (c) 2022 Dr Muhammad Ilyas Ansari, Waseem Abbas, Dr Arslan Tariq Rana
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