Political Risk and its affect on Foreign Direct Investment of Pakistan

Abstract

The topic of our research attempts to study how Political Risk negatively affects Foreign Direct Investment in Pakistan. As political risk in an unquantifiable factor in itself it has been further divided into four determinants: Law & order situation in the country Corruption level Economic policies adopted and Credibility of the government The research carried out initially consisted of unstructured interviews with open ended questions. The specific nature of the project required technical responses, necessarily fact based. Therefore, these interviews were specifically taken with persons having a reasonable amount of expertise in the fields of politics and the economics of Pakistan. Subsequently, to narrow down our research and keep it strictly relevant to the topic WE developed a close ended questionnaire for the same category of people. The findings of the research conducted that law and order is considered to be the most important determinant of political risk that affects the FDI in Pakistan by all categories of respondents. Government credibility and economic policies follow law and order respectively. Finally, corruption has elicited variety of opinions from respondents. Based on these conclusions a comprehensive list of recommendations has been given at then end of the project. Before all this we will provide a literature review of FDI, where we will assess the determinants of FDI, its effect on economic growth and how has it fared in other developing nations.