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Analyzing the Impact of Foreign Capital Inflows and Political Economy on Economic Growth: An Application of Regime Switching Model

Author

Listed:
  • Nabila Khurshid

    (Department of Economics, Comsats University Islamabad, Islamabad 44000, Pakistan)

  • Hamza Sharif

    (Department of Economics, Comsats University Islamabad, Islamabad 44000, Pakistan)

  • Mosab I. Tabash

    (College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates)

  • Basem Hamouri

    (Department of Finance and Banking Sciences, Amman University College of Financial and Administrative Science, Al-Balqa Applied University, Al-Salt P.O. Box 19117, Jordan)

  • Asma Fiaz

    (School of Economics, Quaid-e-Azam University, Islamabad 45320, Pakistan)

  • Fozia Munir

    (Department of Economics, Comsats University Islamabad, Islamabad 44000, Pakistan)

Abstract

The goal of this study is to use the Markov Regime Model (MSM) to evaluate the impact of three important FCIs and the political economy on Pakistan’s economic growth. The current research used quarterly data from 2000 to 2020. The empirical results demonstrate that dictatorship contributes favorably to the high and low growth regime of the economy, while election time contributes positively to the expansion period and adversely in recession times of the economy. Results confirmed that external debt has a strong negative influence on economic growth in both the high and low-growth regimes. Remittances, FDI, and growth, on the other hand, have a positive and substantial link with economic growth. This research suggested that effective fiscal and monetary policies, as well as a suitable political environment, should be provided so that foreign investors would be enticed to invest in Pakistan.

Suggested Citation

  • Nabila Khurshid & Hamza Sharif & Mosab I. Tabash & Basem Hamouri & Asma Fiaz & Fozia Munir, 2023. "Analyzing the Impact of Foreign Capital Inflows and Political Economy on Economic Growth: An Application of Regime Switching Model," Economies, MDPI, vol. 11(7), pages 1-17, June.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:7:p:181-:d:1184669
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    References listed on IDEAS

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