The Impact of Quality of Institutions on Sectoral FDI

Abstract

This study addresses the issue whether institutional quality affects the sectoral FDI both in short run and long run in Pakistan. By employing ARDL co-integration technique, we analyse the impact of institutional quality on primary, manufacturing and services sectors FDI in Pakistan. The findings suggest that institutional quality matters in attracting FDI in manufacturing and services sectors in the long run while institutional quality does not have a significant impact on FDI in the primary sector. Moreover, results show that the impact of institutional quality on these sectors is not apparent in short run. The main findings from this research are that in long run institutional quality matters to attract substantial FDI in manufacturing and services sector of Pakistan. Hence, policies aimed at strengthening the institutional quality should be the priority for government. JEL: F21, O43, C22