Does Foreign Direct Investment and Institutional Quality Promote Welfare in Pakistan? Evidence from Non-Linear Autoregressive Distributed Lag Co-Integration

A significant amount of available research employs panel data analysis to evaluate the association between foreign direct investment, the quality of institutions, and human development parameters, meaning that there are currently relatively few studies on the topic that focus on one country in particular. It is crucial to investigate this relationship in the context of an individual or single country because different countries have different aspects, different access to statistics, and different political and economic environments. To contribute to the paucity of research on the topic of an individual-country viewpoint, the present investigation looks into the relationship between well-being (HDI) in Pakistan and foreign direct investment (FDI) and institutional quality (INQ) over the years 2002 to 2022. To investigate both the positive and negative co-integrated parameters, we utilized the non-linear autoregressive distributed lag (NARDL) method. The findings support the asymmetric long- and short-term relationships between foreign direct investment and well-being as well as the long-term associations between institutional quality and well-being. Every percent increase in institutional quality leads to a 0.662 percent rise in well-being. Conversely, a 1% decrease in institutional quality leads to a 0.212 percent decline in well-being. Given Pakistan’s evolving economic performance, financial resources are necessary for all forms of economic endeavours. Nonetheless, the findings of the investigation indicate that neither the long-term effects of foreign direct investment and the short- and long-term effects of institutional quality on well-being are inconsistent. In terms of legislation, the primary goals are supposed to be to advance institutional quality (INQ) and foreign direct investment (FDI), with the goal of ensuring Pakistan’s sustained well-being.