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Do Uncertainty and Financial Development Influence the FDI Inflow of a Developing Nation? A Time Series ARDL Approach

Author

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  • Abdalwali Lutfi

    (Accounting Department, College of Business Administration, King Faisal University, Al Ahsa 31982, Saudi Arabia)

  • Maryam Ashraf

    (Department of Accountancy, Superior University, Lahore 54000, Pakistan)

  • Waqas Ahmad Watto

    (Department of Commerce, Bahauddin Zakariya University, Multan 60000, Pakistan)

  • Mahmaod Alrawad

    (Quantitative Method Department, College of Business Administration, King Faisal University, Al Ahsa 31982, Saudi Arabia
    Department of Accounting, Finance and Banking, College of Business Administration and Economics, Al-Hussein Bin Talal University, Ma’an 71111, Jordan)

Abstract

The study focuses on investigating the long-term and the short-term effect of uncertainty, and financial development on the FDI inflow of Pakistan during the period 2001–2019. To achieve the objective of this study, we obtained the data from World Development Indicators (WDI) and the European policy uncertainty index’s websites. The dependent variable was FDI inflow. Experimental variables of the study are uncertainty and financial development. The stationarity testing revealed that FDI and Economic Policy Uncertainty (EUP) have weak significance and FD has no significance. However, by taking the first difference, all the variables become highly significant. Similarly, it is further indicated that the optimal lag level is four. Additionally, the bound test confirmed that a long-term relationship (co-integration) existed between the variables of the study. The ARDL estimations conclude that uncertainty and financial development have long-run as well as short-run effects on FDI inflow for Pakistan during the period of study. The uncertainty plays a strong part in decreasing the FDI inflow, whereas financial development plays a strong part in enhancing the FDI inflow in Pakistan during the period of study.

Suggested Citation

  • Abdalwali Lutfi & Maryam Ashraf & Waqas Ahmad Watto & Mahmaod Alrawad, 2022. "Do Uncertainty and Financial Development Influence the FDI Inflow of a Developing Nation? A Time Series ARDL Approach," Sustainability, MDPI, vol. 14(19), pages 1-11, October.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:19:p:12609-:d:933082
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