Impact of Terrorism on FDI Inflow in Pakistan- A Time Series Analysis

Finance is needed to grow every sector of life. The internal finance can be raised through public saving, direct and indirect taxes, etc. while the external sources of finance include foreign direct investment and loans from the foreign and local lending institutions. Foreign direct investment is considered very important as an external source of finance as it has long term effects in both quantitative and qualitative terms and doesn’t need to be paid off back with heavy interest charges like in the case of loans. FDI plays a key role in bringing capital, advanced technology, skills transfer and increase standard of living in developing countries. Pakistan as a developing country needs a huge amount of finance for development and non-development expenditures. With its heavy budgetary deficits, the country took and is still taking loans from different lending institutions. The country didn’t focus on raising FDI in the starting decades, but then it realized the importance. Over the last two decades, Pakistan has also made significant efforts in increasing the flow of foreign investment. However, the country has suffered terrible terrorism after the 9/11 attacks which have also impacted the flow of investment in the country. Terrorism is the actions of the people who are working against the law and the government. The flow of investment a decade before and after the 9/11 terror attacks has been analyzed that had hit the country with massive terrorism disrupting the economic scenario