Investor Confidence and Asymmetric Effects of Terrorism - A case of Pakistan
DOI:
https://doi.org/10.14665/1614-4007-26-009Keywords:
Asymmetric effects ARDL, Investor Confidence, risk premium, political instabilityAbstract
Foreign Direct Investment plugs the investment saving gap and a source for transfer of technology and productivity. The major reason for the flow of investment across borders is the difference in the rate of return. But the catch is that foreign investors are more risk averse as compared to the local investors. Investor confidence is sensitive to economic conditions especially like terrorist events which cause capital flight. This study tests the asymmetry in effects of terrorism on FDI, showing that in short run terrorism leads to increase in FDI, later on, it decreases the FDI and it is the time period where asymmetry between the effects of increasing and decreasing FDI occurs. While in long run, the effect of an increase and decrease in terrorism tend to become almost equal and opposite. This indicates that Pakistan needs to be patient as it will take more time to regain investor confidence.
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