GOVERNANCE, HUMAN CAPITAL, TRADE OPENNESS EFFECT ON FOREIGN DIRECT INVESTMENT: AN EMPIRICAL STUDY IN CASE OF PAKISTAN

Abstract

The purpose of this paper is to investigate empirically macroeconomic factors which are causing low level of FD inflow to Pakistan. This study aims at to analyze and to test how the most effective role of governance and human capital along with other factors in inflow of FDI in case of Pakistan. Auto Regressive Distributive lag (ARDL) econometric technique to co integration has been used for time series data from the period of 1984 to 2012. The study showed statistical significant and positive effect of governance and human capital on FDI in case of Pakistan in short run and long run. The research findings can be used by government, countries, different agencies that are facing governance problems in the form of terrorism, crimes, Corruption, political instability and worst law and order conditions or those that are engaged in rehabilitation after terrorism. It is first study in which governance effect on FDI was estimated through governance composite index introduced by ICRG while all the literature we examined none of study used such composite in Pakistan. It will contribute a lot in economic literature and will support to govt. in making policies which could raise the level of FDI.