Impact of Political Stability on the Macroeconomic Variables and FDI of Pakistan

In this paper we have discussed the vital role of political stability on the link between macroeconomic variables and FDI .For this purpose we have used a data of year 1991 to 2011.In this empirical analysis we have used ADF test for the checking the stationary of the data and other software’s are SPSS and eviews.This result of this study have made sure that import ,BOP, export and GDP growth rate have significant impact on the FDI inflows in the Pakistan and inflation has a negative impact on the FDI based on this research has proved that political stability is crucial for the expansion of foreign direct investment.


Introduction
Foreign Direct investment has on the most famous source of getting investment from other countries. The use of this reserve has major aspects of construction assets in developing countries. The role of foreign direct investment has been consider widely as a growth enhancing factor in the developing Khan ( 2007) countries. FDI is measured as major structure of manufacture in scene of technological progress, unemployment reduction, talent improvement, market competition and great outflow of exports. The possible compensation of FDI is its use the local raw material; introduce the technique of administration and advertising. Simplicity the right to use of new technology. The biggest advantages of FDI are to do not pay off principal and interest amount. History tells us that FDI in Pakistan is more in dictatorship as compare to civilian Governments. This is because Foreign has more trust on dictatorship as compare to civilian Government.
The Previous done studies on this topic "Impact of Foreign Direct Investment on Pakistan economy" .For example Farkas (2012) result show that there is positive relationship between Foreign Direct Investment on Pakistan economy. Hameed and Bashir (2012) show us that FDI lead toward economic growth In this research I want to study the impact of FDI on economic growth of Pakistan from1980 to 2013. For this research my variables were foreign direct investment, Inflation and Gross domestic product .The other part of this research paper is planned as follow. Literature view is mention at section 2, methodology is in section 3 and 4 section tells us about Data analysis and empirical result is given and section 6 include conclusion. The boarder area of this study is to investigate the GDP and other factors of economy which affect Foreign Direct Investment? In the age of 21 century it has developed that FDI is based on the different economic factors like capital inflows. According to different researchers FDI is the way of the attractive the domestic investors. According to Awan khan (2011) in the developing countries there are many much choices for the development of foreign investors as increasing rate. Many developing country are offering lucrative package for the foreign investors .For instance china,Russia,and India are working on it .they are offering low tax rate, liberalized trade policy and are providing a moral security system .according to world development report(2011) foreign direct investment is reflect the main crucial of the economic growth. Since 1990 s foreign direct investment is the act as the boon for the developing country industrialization. It is very interesting topic to compare trade and investment in the international business in the whole world.Moreever,from the last few decades the Pakistan s economy rate was fluctuating.in 1991,Pakistan economic GDP growth rate was 7.57% and in 2000 Pakistan growth rate has down till 2.1% .Pakistan foreign rate has lopsided in every year. With the increase in import the country s export has increased rapidly. Government of Pakistan is facing the problem of adverse BOP.
Since from last 10 years the inflows had been increasing in the same case the level of FDI was low in Pakistan. According to UNCTAD(2007) ,thus India has consider as attractive country then china and Russia. This thing has proved that Indian policy makers have attractive destination for the foreign investor. Pakistan needs to learn from the indian policr markers about their vision.it is a important factor to empirically investiage iimpact of marcoeconomic variables on the conomic growth and political stability of paksitan Akhtar(2000) has conducted a study that FDI is the dependent variable and import, export and exchange rate is the independent variable .wang (2009) has observed that FDI and foreign direct investment of 12 Asian countries. Awan(2010) has shown the determinants of FDI and also detected that inflation rate has a significant impact on the FDI inflows.shahzed et al (2012) impact of macroeconomic variables on the GDP, and growth rate.

Determinants of FDI inflows
GDP growth rate: After review the GDP growth rate foreign investors take decision about the investment.in the economic literature growth rate and FDI inflows are very common topic. According to Martinez-zarzoso(2003) has shown result that high level of growth rate indicates a high level of production. According to Martinez-Zarzoso(2004) has proved that high level of income attractive a lot of investors towards home country. Different researchers are consider GDP growth rate as a indicator of economic performance.Qaiser (2011)  Exports Exports are consider is as a improvement in the BOP of the country. A few researchers have proved that volume of export is the best way to attractive a FDI inflows.jayachdran and seilan (2010) have investigated the relationship between import, export and FDI period of  .this study proved that there is causal relationship between these variables .Liu et al (2002) has investigated the relationship of import export in china . Hall and Milne (1994) have found the positive relationship between foreign trade and FDI.

Balance of payment
In the previous studies it has cleared that for the FDI inflows there is need to improve the balance of payment .According to Majeed and Eatazz(2009) has shown that there is negative relationship between inflation and BOP .

Imports:
Different studies have proved that a country which has high imports that is useful for FDI.According to Geweks(1982) has found that there is positive relationship between imports and FDI in USA. Aizenman and noy(2005) have found that for the measurement of import it is important to measure the inflows of FDI.

Inflation rate:
Inflation rate tells about the good economic fundaments.rate of I flation is consider crucial fator which has influence on the FDI inflows.hign rate inflation means lesser FDI inflows.according to Akinboade (2006) low rate inflation means internal economic stability.according to Awan et al(20060 have concluded that caused by positive significant impact on FDI.

H5:the relationship exist between inflation rate and FDI.
Political stability and FDI: Political stability has vital role in the development of business environment of the country. Political risk is totally depends upon the political stability. According to shahzad et al (2012) political stability has role to enhance the probability of FDI inflows.it is understood that political stability is not beneficial for the development of economic s development. According to World Bank report (2011) political instability has impact on the previous FDI.

Research Framework and Variable Measurement:
LITERATURE REVIEW: This is one of the hottest topics for Researcher to study. Many researchers have examined the relation between FDI economical growths. Accounting model Frame work is used by many researchers to analyzing the effect of  (2014)  M. Shahidan Shaari, Nor Ermawati Hussain, and Mohd Suberi bin Ab. Halim (2012) examine the impact of foreign direct investment on the unemployment rate and economic growth in Malaysia from 1980 to 2010.There variables were GDP, unemployment and FDI. The ordinary least squares method is used to test the date. There result indicates that FDI reduce the unemployment rate and increase the domestic Product.FDI increase the economic growth of Malaysia. A.Muhammad Gudaro, Imran Umer and Salamn Ahmed Sheikh analysis the impact of foreign direct investment on Pakistan economy. The date spanned was period of 1981 to 2010. FDI, CPI (Inflation) and GDP were variables of this study. They use multiple regression model to evaluates their variables. According to result, GDP has positive significant impact on FDI and GDP has negative impact on CPI. Policy proposals were advice to attract FDI in Pakistan.
Ismail and Latif (2009) examined the impact of Foreign Direct Investment on unemployment rate and economic growth in Turkey. There variable were FDI, export, one auto regression technique of variance decomposition and impulse employment, and GDP for period of Jaunary,2000 to April 2007.They applies vector auto regression technique of variance decomposition and impulse response function to analysis the variables. There finding show that FDI is unable to reduce unemployment rate and exports have positive impact on GDP. They study did not support export-led model and economic growth is not solution for unemployment Turkey. There variables were FDI, import, export, gross domestic product .and GDP deflator. They evaluate the date through unit root test, Co integration technique and error correlation. The result indicates that FDI positively impact import short run and long run. Export impact negative in short run and positively in long run.
Dr. Sauwaluck Koojaroenprasit (2012) explores the impact of Foreign direct investment on economic growth in case of south Korea .The study cover the time period from 1980-2009. FDI, domestic investment, employment, export, and human capital are their variables. The multiply regression model is used. The study indicates that human capital, employment, export has positive impact on economy while domestic investment has negative impact on economy. The result shows that there is a strong and positive impact on Pakistan economy.
Arshad Muhammad (2012) studies the impact of foreign direct investment on trade and economic growth of Pakistan. The date ranged from 1965 to 2005.They use four variables FDI, import, exports and GDP .The co-integrating VAR frame work is used. There result show that there are two long run relationships between GDP. Import. GDP.In second long run relation both import and export affect FDI but GDP is not significant affecting and FDI has no significant effect on domestic investment. Q. Abbas .Salman Akbar, Ali Shah.Hafiz Ammab ullah. and M.Akram Naheem (2011) explore the impact of foreign direct investment on gross domestic product for period of 2001 to2010 .GDP were considered as depended variable and FDI and inflation were considered as in depended variable .They applied multiple regression model. There results indicate that positive and significant relationship between GDP and FDI while insignificant relationship between GDP and FDI.

Data analysis and results
To analysis the impact of marcoeconomic variables on the FDI and impact of political stability on the development of the economy.

Unit root tests
First of all we shall evaluated the time series date because we want to avoid the spurious regression .and we shall analysis that nature vice variables are stationary or not.in the procedure we have used the augmented dickey filler test in table no 2.we have found that all the macroeconomic variables are stationary.

Regression analysis
After the regression analysis we have found a satisfied result regression analysis by using SPSS 18.0.it is used to compare the predictive power of all marcoeconomic variables. Table no 3 concluded that GDPGR (β=0.289,t=3.068,p<0.05 ,export(β=1.307,t=2.352,p<0.050),imports(β=2.091,t=3.362,p<0.05) and BOP( β=2.091,t=3.362,p<0.05).all these result have supported the hypothesis which we were derived before.in the case of Pakistan inflation was not significant determinants of FDI.
Rate was not significant determinants of the FDI inflows in the case of Pakistan.  Vol.6, No.2, 2016 Hierarchical regression: At the analysis stage the hierarchical analysis were reported. First in this paprer we have analysis the impact of political stability on the above mention relationship. They have following the method of Frazier,tix and Barron(2004).in this model have analyzed the interaction between marcoeconomic variables. And have tested business environments and political stability for the purpose of testing the moderating effect.

Discussions, conclusion and recommendations:
In this study we have pertained data from years 1991 to 2011 which are relation to FDI inflows in Pakistan. Hierarchical multiple linear regression was imply for testing the hypothesis .some hypotheses are supported by the results.H1,H2,H4 and h5 are supported while other H3 are not supported .results have proved that political stability is important foreign direct investment in Pakistan .all the results have create that GDP and BOP almost based on the country s established .for any economy continuous growth of GDP is well sign .which will helpful to attractive foreign investors towards FDI.GDP growth rate is v convenient tool for the FDI inflows .export is also consider the way to attract the foreign investment. This is best choice for Pakistan policy makers to provision export oriented FDI .Pakistan government should provide very virtuous varieties for high tech companies that they invest more in their country. All the Pakistan policy makers should learn lesson from other countries like India and Malaysia. There are additional benefit for export oriented FDI like innovative technology, stronger exchange rate, super knowledge management. It is very peak time that that Pakistani investors are increasing export and decrease the export.in this situation Pakistan exports are lower. Strong BOP has also role to increase FDI.This study is also based on the political stability for the stability of marcoeconomic .these are the following factors which have impact on the economy like BOP, trade policy, infrastructure. According to world report Pakistani political stability is not satisfied then other countries like china and Pakistan.paksitan government should make such laws which protect the foreign investment that laws will demonstrable on the political stability. In this study we have discussed a empirical parameters .we have discussed that Pakistan policy makers should make FDI policy for the attract the investment. There are two sectors of policy maker's sectors 1positive sector 2) negative sector. Positive sector is that in which FDI inflows are boost. Negative sector is that in which in which FDI sector is need to overruled .there must be approval procedure to see the FDI policy .different developing country like Pakistan there is need to sponsor its policy towards FDI inflows.one of the most import opinion about this research that to examine in particulars the moderating impact of political immovability on the business environment.