Terrorism in Pakistan and Its Impact on Foreign Investment

Abstract

Terrorism activities decrease the foreign investor confidence, which decrease the FDI
(Kinyanjui, 2014). This paper examines the impact of terrorism, CPI, exchange rate and
interest rate on foreign investment in Pakistan. Foreign investment involves both Foreign
Direct Investment and Portfolio Investment in Pakistan. The study was based on
secondary time series data. Twelve (12) years quarterly data from 2003 to 2014 was
assimilated for the purpose of analysis. Multiple regression analysis were applied to
scrutinize the relationship among the different variables. All variables such as terrorism,
CPI, exchange rate and interest rate are significant at 5% level and have positive
relationship with foreign investment. The results indicated that terrorism events have a
short term impact on the foreign investment that consequences the lack of long-term
commitments of the foreign investors in Pakistan.