TERRORISM, CORRUPTION, POLITICAL INSTABILITY AND FOREIGN DIRECT INVESTMENT IN MEMBER STATES OF ISLAMIC MILITARY ALLIANCE TO FIGHT TERRORISM

Abstract

This study is conducted with the aim of empirically investigating the FDI potential of the Islamic Military Alliance to Fight Terrorism (IMAFT) member states. The major factors considered are: Terrorism, political instability and corruption. Other important location determinants namely market size, development level, trade openness, infrastructure, macroeconomic stability; human capital and agglomeration are also assessed. FDI requiring a long term resource commitment requires a stable political environment for its operation. Quantitative annual secondary data for the time period of 1996-2017 has been analysed through fixed effect panel estimation technique. A significant positive association for control of corruption and aspects of political stability i-e government effectiveness and absence of violence has been observed in this study. This indicates that prevalence of corruption and political instability in terms of these two aspects is serving as a FDI deterrent in these states. Meanwhile, instability in the other two aspects; regulatory quality and rule of law serves as pull factors for inward FDI. The effect of tele density, inflation, and agglomeration were found significantly positive while that of exchange rate, significantly negative. However, market size, development level, trade openness, telephone subscribers and human capital, though equally important, are found to be insignificant. The key finding is that the impact of political instability and corruption is significant for FDI to the IMAFT member states.