Impact of Terrorism on FDI Inflows: A Case Study of OIC Countries (1990-2014)
Author: Saba Jawaid

OIC countries face many problems and challenges in attracting the FDI inflows, out of which terrorism appears to be an important one. The present study tries to empirically estimate the impact of terrorism on FDI inflows of the OIC countries by using a panel data for a group of 43 OIC Countries during the period 1990-2014. Other than terrorism, the model of the study also includes a set of control variables as the determinants of FDI, namely, market size, inflation, infrastructure, trade openness, institutional quality, political instability, human capital, gross fixed capital and exchange rate. For the estimation purpose, Panel Cointegration method and Dynamic OLS techniques are employed in order to check for the presence of long run relationship among the variables of the model and Panel ECM is employed to check the impact during the short run. Panel causality tests are also employed to check for the direction of relationship between FDI inflows and terrorism of OIC countries. The main empirical results of the independent variable of terrorism confirm the point that terrorism discourages the FDI inflows of OIC Countries over time. Moreover, according to the long run estimates, the control variables of inflation, market size, infrastructure, trade openness, institutional quality and fixed capital show a positive and significant impact on the FDI inflows of OIC countries. However, human capital has a positive but insignificant impact on the inward FDI of these countries and exchange rate and political instability are negatively and significantly affecting the FDI inflows. During the short run, all the variables have their expected signs (relation with FDI) including terrorism, yet, only exchange rate, market size and trade openness appear to be significant. In addition, two-way causality exists among terrorism and FDI inflows of OIC countries. The most significant point of the study is the inclusion of all terrorist ridden Muslim countries together. Future research may be carried out in order to investigate the effects of terrorism on individual OIC countries to get hold of more specific and precise results. Supervisor:- Prof. Dr. Usman Mustafa

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Keywords : Causality, FDI, OIC Countries, Panel Cointegration, Panel ECM, Terrorism
Supervisor: Usman Mustafa

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