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.
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.
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.
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.
The authors are thankful to the two anonymous reviewers for their valuable comments and suggestions and are also thankful to the editor JSE for guidance.
Shah, S.H., Hasnat, H. and Sarath, D. (2020), "The impact of foreign direct investment on trade in Pakistan: the moderating role of terrorism", Journal of Economic Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JES-06-2019-0263Download as .RIS
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