Examining the Nexus between Institutional Quality, Foreign Direct Investment, and Economic Growth in Pakistan: A Secondary Data Analysis Approach (Foreign Direct Investment, Institutional Quality, Corruption/Economic Growth)

Abstract

This study examines the connection between institutional quality, foreign direct investment (FDI), and economic growth in Pakistan. Institutional quality has become a major factor influencing FDI attraction and its effects on economic performance. Strong institutions engender an attractive environment for investment, while weak ones may cause FDI not to go ahead and result in poor economic performance. We hope this research will not only examine the difficult nature of these complex relations, but also propose ideas for policymakers. The study begins with a review of the existing literature about the theoretical background and supporting theories for this research. It also builds hypotheses about FDI's effect on economic growth and institutional quality, as well as the moderating role of corruption and mediating effects of institutional level. A quantitative approach is used in the research methodology, involving regression analysis and panel data techniques. This study's findings add to the knowledge of how FDI may affect economic growth in Pakistan. It demonstrates how crucial institutional quality is in luring long-term investment and FDI inflows. Furthermore, improvements in institutional quality, such as the rule of law and the decrease in corruption, as well as regulatory frameworks, have a favorable impact on FDI and economic growth. The study also shows that institutional quality acts as a mediator between FDI and economic growth. The importance of these findings is significant for policymakers and stakeholders who want to support sustainable FDI and economic growth in Pakistan. Having good institutions is the best way for governments to lay the groundwork, which will help boost business environments and keep political stability high. That in turn attracts foreign investment from all over the world. The study calls for selective investment in businesses such as renewable energy, agri-business and information technology to use FDI effectively to boost economic growth.