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The impact of foreign direct investment on trade in Pakistan: the moderating role of terrorism

Author

Listed:
  • Syed Hasanat Shah
  • Hafsa Hasnat
  • Delpachitra Sarath

Abstract

Purpose - Pakistan suffered with the menace of terrorism for long and become a front line state in the “War on Terror”. Terrorism shattered Pakistan economy and rendered her external sector vulnerable to instability and uncertainties. Design/methodology/approach - Therefore, using system generalized method of moment (GMM), this paper investigates the impact of foreign direct investment (FDI) on exports, imports and trade deficit in the face of unabated terrorism in Pakistan. Findings - The findings of the paper suggest that as terrorism in Pakistan increased, FDI contribution to Pakistan exports decreased while FDI contribution to Pakistan imports significantly increased. Terrorism also disrupted the chain of local production and increased Pakistan reliance on imports. Thus terrorism widened Pakistan trade deficit of Pakistan and expose Pakistan to external imbalances. Originality/value - Despite rise in organized acts of terrorism and its adverse impact on various departments of economy, hardly any study bothers to check its impact on trade and investment nexus. This is the first study of its nature that looks deep down to understand how terrorism affects the relation of major economic variables.

Suggested Citation

  • Syed Hasanat Shah & Hafsa Hasnat & Delpachitra Sarath, 2020. "The impact of foreign direct investment on trade in Pakistan: the moderating role of terrorism," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(5), pages 1137-1154, May.
    • Handle: RePEc:eme:jespps:jes-06-2019-0263
    DOI: 10.1108/JES-06-2019-0263
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    Citations

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    Cited by:

    1. Liu, Ke & Fu, Qiang & Ma, Qing & Ren, Xiang, 2024. "Does geopolitical risk affect exports? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1558-1569.
    2. Destek, Mehmet Akif & Manga, Müge & Cengiz, Orhan & Destek, Gamze, 2022. "Investigating the potential of renewable energy in establishing global peace: Fresh evidence from top energy consumer countries," Renewable Energy, Elsevier, vol. 197(C), pages 170-177.

    More about this item

    Keywords

    FDI; Terrorism; Exports; Imports; Trade deficit; Trade partners; System GMM; Pakistan; F21; F40; H56;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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