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