The nexus between sectoral FDI and institutional quality: empirical evidence from Pakistan
ABSTRACT This study investigates short and long run bidirectional causality between institutional quality and sectoral level FDI in Pakistan by using the ARDL technique. The results confirm that long run bidirectional causality exists between institutional quality and aggregate FDI. The in depth sectoral level FDI analysis substantiates the presence of long run bidirectional causality between institutional quality and FDI in services and manufacturing sectors, while no long run causality is observed between institutional quality and FDI inflows in primary sector. Furthermore, the results in the study reveal short run bidirectional causality only between institutional quality and manufacturing FDI and report insignificant short run causal link between institutional quality and FDI in primary and services sectors. The overall findings of the study suggest that in the long run institutional quality attract FDI and FDI inflows, particularly to manufacturing and services sectors, significantly enhance the quality of institutions in Pakistan.