THE IMPACT OF GOVERNANCE ON FOREIGN DIRECT INVESTMENTS: EVIDENCE FROM PAKISTAN, INDIA & BANGLADESH

Purpose: Foreign direct investment (FDI) plays a vital role in the economic growth and development of the developing countries. This study examines the governance and its impact on foreign direct investment in Pakistan, India and Bangladesh.Design/Methodology/Approach: This study measure country governance through voice and accountability , government effectiveness, rule of law, regulatory quality, political stability and absence of violence and control of corruption controlling for macroeconomic factors such as gross domestic product, inflation, exchange rate and rate of interest. Pooled and Panel data analysis is performed. Findings: The empirical results suggested that that Rule of law has negative impact on FDI whereas Government effectiveness, Regulatory quality and Gross domestic product have positive impacts on FDI Moreover, the Hausman test results suggested that random effect is prevailing in data, While Breush Pagan Lagrange Multiplier test suggested that pool model analysis is preferred over panel data.Implications: From the results it is concluded the three countries has poor governance comparatively to the develop countries. So they need to improve its governance to attract more and more FDI inflow. If there is good governance in a country so more and more investors will invest in the country. So the government should adopt such sound policies and should promot