Impact of Terrorism on Investment: Evidence from Pakistan

Terrorism destabilizes and demoralizes the nation, it also breeds depression and frustration in an economy. It is badly affecting factor of economic growth and development of Pakistan. In this study, we have tried to find out the impact of terrorism on domestic investment as well as foreign direct investment in Pakistan for the time frame of 1980-2015. The autoregressive distributed lag bound testing co-integration approach is used to examine the long run relationship. The results show that there is a long run relationship between terrorism and investment. The empirics also expose a negative effect of terrorism on both domestic and foreign investments while human capital and trade are playing a vital role to enhance the level of investment. The study suggests that the government should force all the people to leave the country who are illegally present. The need is to take steps to stop the illegal flow of arms and money into the country from abroad. It is the moral responsibility of all the secret agencies of Pakistan and media should work in the coordination with one another and try their utmost to detect and identify the terrorists.