Predictive Modelling of FDI Trends Leveraging Time-Series Data to Forecast the Impact of Political Stability in Emerging Markets

Abstract

Primarily in the developing economies of South Asia, political stability has become a crucial component in securing foreign direct investment (FDI). The main objective of this research paper is to evaluate the impact of political stability on Foreign Direct Investment (FDI) inflows in three selected South Asian countries (Sri Lanka, Pakistan, and Bangladesh) through a quantitative research design and a deductive approach for the period of 2000-2022. The Autoregressive Distributed Lag (ARDL) model, which is suitable in the presence of mixed orders of integration, is used in this research to capture both short-run and long-run dynamics. The dependent variable in this study is foreign direct investment, with political stability acting as the primary independent variable. Additionally, four control variables are included: government spending, inflation, openness to trade, and corruption control. The model's findings show that in some South Asian nations, political stability positively affects foreign direct investment inflow. While government spending is not even marginally significant, the other control variables, such as inflation, openness to trade, and corruption control, have substantial positive and negative correlations. Therefore, it can be concluded that in order to draw in more Foreign Direct Investment (FDI) inflows, South Asian nations need to improve their political stability by putting in place suitable laws and procedures.