IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/122673.html
   My bibliography  Save this paper

Impact of Cultural, Economic and Political Factors on FDI and Trade Scenario:Empirical evidence from Afghanistan

Author

Listed:
  • Mashal, Khalid Ahmad
  • Rasa, Muhammad Mirwais

Abstract

Foreign direct investment is a critical and leading effective component of economic growth and is influenced by many economic, political and cultural factors. Foreign direct investment is a major form of international capital transfer and has increased substantially over the last decades as a consequence of rising global economic integration. It has even grown faster than world GDP and merchandise trade despite the large drop in world FDI flows at the turn of the millennium. The two-way flow between developed countries still accounts for the largest part of asset trade. To this end, an extensive theoretical and empirical analysis has been carried out over the period 2005-2019. This paper has tried to contribute empirical findings and results to the question of what way economic, cultural and political factors influence FDI inflows. Therefore, this paper investigated a set of bilateral Afghanistan inward FDI stock data for the period 2005-2019 in a panel with 15 countries. Cultural differences proved to have a significant negative effect on bilateral FDI stock. Also, the results demonstrated a significant effect of the type of legal family in a country on FDI. However, the effect of belonging to the same legal family is negative. The political situation in a country proved to be a significant determinant of bilateral FDI stock. Countries with a low political rank divert more FDI to Afghanistan. The results reveal that U.S. policies produce no significant influence on long-term capital inflows to Afghanistan in the long run. However, in the short-run U.S. diplomatic policies produce a negative influence on inward FDI to Afghanistan. The results also reveal that domestic investment; financial development, and infrastructure exert a significant positive impact on FDI in the long- as well as short-run. More importantly, Afghanistan may establish its political ties with major international powers, particularly with the United States based on mutual interests and dignity and those relations should be consistent, sustainable and predictable.

Suggested Citation

  • Mashal, Khalid Ahmad & Rasa, Muhammad Mirwais, 2022. "Impact of Cultural, Economic and Political Factors on FDI and Trade Scenario:Empirical evidence from Afghanistan," MPRA Paper 122673, University Library of Munich, Germany, revised 19 Nov 2022.
  • Handle: RePEc:pra:mprapa:122673
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/122673/1/MPRA_paper_122673.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kostova, Tatiana & Marano, Valentina & Tallman, Stephen, 2016. "Headquarters–subsidiary relationships in MNCs: Fifty years of evolving research," Journal of World Business, Elsevier, vol. 51(1), pages 176-184.
    2. Wani, Mr. Nassir Ul Haq & Dhami, Dr. Jasdeep Kaur, 2016. "Ecopreneurship: The reality cultured for today and tomorrow?," MPRA Paper 71384, University Library of Munich, Germany, revised 17 May 2016.
    3. Khatera Sadiqi & Dr. Nassir Ul Haq Wani, 2018. "Latency of Afghanistan-SAARC Merchandise Trade Relation: An Economic Evaluation," Kardan Journal of Economics and Management Sciences, Kardan University, Department of Economics, vol. 1(2), pages 12-13, April.
    4. Khan, Mashrur Mustaque & Akbar, Mashfique Ibne, 2013. "The Impact of Political Risk on Foreign Direct Investment," MPRA Paper 47283, University Library of Munich, Germany.
    5. Usman Ali & Faizan Ahmad & Lida Ormal, 2018. "Trade Compatibility between Afghanistan and India : An empirical Evaluation," Kardan Journal of Economics and Management Sciences, Kardan University, Department of Economics, vol. 1(1), pages 11-12, January.
    6. Nassir Ul Haq Wani, 2019. "Nexus between Openness to Trade and Economic Growth: An Empirical Investigation of Afghanistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(2), pages 205-223, September.
    7. Nazeer, Abdul Malik & Masih, Mansur, 2017. "Impact of political instability on foreign direct investment and Economic Growth: Evidence from Malaysia," MPRA Paper 79418, University Library of Munich, Germany.
    8. Nassir Ul Haq Wani & Jasdeep Kaur Dhami, 2014. "Economic Concert, Collaboration and Prospective of Trade between India and Brazil," Foreign Trade Review, , vol. 49(4), pages 359-372, November.
    9. Wani, Nassir Ul Haq & Kabir, Habib, 2016. "An evaluation of relationship between public debt and economic growth: A study of Afghanistan," MPRA Paper 75538, University Library of Munich, Germany, revised 10 Nov 2016.
    10. S. Van Parys & S. James, 2010. "Why Lower Tax Rates May be Ineffective to Encourage Investment: The Role of The Investment Climate," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/676, Ghent University, Faculty of Economics and Business Administration.
    11. Thi Mai Hoai Bui & Xuan Vinh Vo & Duy Tung Bui, 2018. "Gender inequality and FDI: empirical evidence from developing Asia–Pacific countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 393-416, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sakhizada, Ahmad Fawad & Rasa, Mohammad Mirwais, 2019. "Factors Influencing the Performance of Small & Medium Enterprises (SMEs) in Trade: Empirical Evidence from Afghanistan," MPRA Paper 122727, University Library of Munich, Germany, revised 17 Dec 2019.
    2. Rlung, Ahmad Saleem & Rasa, Mohammad Mirwais, 2021. "Impact of Afghanistan-Pakistan Transit Trade Agreement on Afghanistan Trade: An Empirical Exploration," MPRA Paper 122588, University Library of Munich, Germany, revised 23 Dec 2021.
    3. Rasa, Mohammad Mirwais & Haq, Inamul, 2023. "Diversifying Transport and Transit Routes in Central Asia: Key Insights," MPRA Paper 123542, University Library of Munich, Germany, revised 20 Nov 2023.
    4. Wardak, Ahmad Shah & Rasa, Muhammad Mirwais, 2024. "Determinants of Trade Costs of Afghanistan with its Major Trading Partners: An Empirical Examination," MPRA Paper 122953, University Library of Munich, Germany, revised 04 Dec 2024.
    5. Wani, Nassir Ul Haq & Hatam, Ahmad Khalid, 2022. "Afghanistan's Regulatory Business Environment: Exploring the Impact on Trade," MPRA Paper 122418, University Library of Munich, Germany, revised 14 Sep 2024.
    6. Rlung, Ahmad Saleem & Rasa, Mohammad Mirwais & Gull, Zubair Mubarak, 2024. "Effect of Afghanistan-Pakistan Transit Trade Agreement on Afghanistan Merchandise Trade: An Introspection and Literature Review," MPRA Paper 123183, University Library of Munich, Germany, revised 25 Dec 2024.
    7. Karokhi, Somaya & Rasa, Mohammad Mirwais, 2020. "Impact of Corruption on Foreign Direct Investment, Tax Revenues and Trade in Afghanistan: An Empirical Examination and Literature Review," MPRA Paper 122672, University Library of Munich, Germany, revised 08 Jun 2021.
    8. Rasa, Mohammad Mirwais & Sharifi, Mujeeb, 2021. "Nexus between Women Empowerment, Poverty Reduction, and Relevance with Trade: A Case Study of Afghanistan," MPRA Paper 122574, University Library of Munich, Germany, revised 13 Apr 2022.
    9. Sabar, Parisa & Rasa, Mohammad Mirwais, 2021. "Impact of COVID-19 on Women-Led SMEs in Kabul: Linking and Understanding their Role in Trade and Empowerment," MPRA Paper 122511, University Library of Munich, Germany, revised 08 Oct 2024.
    10. Wani, Nassir Ul Haq, 2023. "Decoding Social Media’s Role in the Resurgence of the Taliban: A Literature Review," MPRA Paper 121874, University Library of Munich, Germany, revised 09 May 2024.
    11. Rasa, Mohammad Mirwais, 2022. "Dynamic of Trade Specialization and Performance of SAFTA: A Case Study of Afghanistan," MPRA Paper 122505, University Library of Munich, Germany, revised 25 Oct 2024.
    12. Sicong Li, 2020. "Determinants of Chinese Direct Investment in Central-East Europe under the Belt and Road Initiative Framework: A Panel Data Analysis," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 6(4), pages 62-81, October.
    13. Wani, Nassir Ul Haq & Grover, Veena, 2024. "The Dwindling Trade Policy Scenario in India: Fresh Insights," MPRA Paper 120991, University Library of Munich, Germany, revised 20 May 2024.
    14. Mohamad Aizad Mohamad Azahar & Hafizah Hammad Ahmad Khan, 2024. "The Impact of Political Instability on Foreign Direct Investment in Malaysia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(9), pages 2848-2858, September.
    15. Wani, Nassir Ul Haq, 2019. "Latency and Economic Concert of India’s Trade with Russia: An Empirical Investigation," MPRA Paper 104616, University Library of Munich, Germany, revised 19 Nov 2020.
    16. Lazarova, Mila & Peretz, Hilla & Fried, Yitzhak, 2017. "Locals know best? Subsidiary HR autonomy and subsidiary performance," Journal of World Business, Elsevier, vol. 52(1), pages 83-96.
    17. Innan Sasaki & Niina Nummela & Davide Ravasi, 2021. "Managing cultural specificity and cultural embeddedness when internationalizing: Cultural strategies of Japanese craft firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 245-281, March.
    18. Shaker A. Zahra & Olga Petricevic & Yadong Luo, 2022. "Toward an action-based view of dynamic capabilities for international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(4), pages 583-600, June.
    19. Glenn P. Jenkins & Abdallah Othman & Edna Armendariz & Anastasiya Yarygina, 2025. "Systematic Review Of Evidence On The Impact Of Tax Incentives In Latin American And Caribbean Countries," Development Discussion Papers 2025-05, JDI Executive Programs.
    20. Sarianna M Lundan, 2018. "From the editor: Engaging international business scholars with public policy issues," Journal of International Business Policy, Palgrave Macmillan, vol. 1(1), pages 1-11, June.

    More about this item

    Keywords

    FDI inflows; Afghanistan; Political Relations; Economic factors; Cultural factors;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:122673. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.