Impact of Political Instability and Foreign Direct Investment on Economic Development in Pakistan

Abstract

According to economists, political instability is harmful for economic development of any Country. Pakistan is also facing the problem of political instability, since political instability causes a decrease in investment and rapidity of economic development process. This paper aims at analyzing the impact of political instability and foreign direct investment on economic development of Pakistan. The study also checks out what are the variables other than political instability and FDI that effect the economic development of the country. By using times series data from 1980 to 2013 taken from world data bank, an ARDL model is estimated. The estimation of short run result shows that political instability is insignificant, that is, it does not affect economic development in the short run, but in long run its effect on economic development is negative and significant. On the other hand foreign direct investment (FDI) has positive relationship in both short run and in long run. So government should improve political situations and should make strategies to attract FDI.