Political Regime Type And Its Effects On Foreign Direct Investment

Foreign Direct Investment(FDI)is one of the key factor in the economic development of a country.In recent years,the level of FDI has massively increased and reached $1.7 trillion in 2016.Multi-national Corporations(MNCs)are being considered critical in enhancing the level of FDI and economic globalization.However,scholars have diverse opinion regarding the role of political regime type in attracting FDI.Many of the scholars' write in favor of democratic political regime as attractive for foreign investors,while others advocate the autocratic political regime more favorable for inward investment.Low level of political risks,institutional quality,transparency,and the protection of property rights are the driving forces of democratic regimes that encourages investors to make decisions regarding investment.Meantime,this particular political regime is considered as more reliable for agreements and the presence of veto players in domestic system make the agreements more reliable and consistent.On the other hand,autocratic political regime is maligned with the practices of banditry,expropriation and high level of political risks.Meanwhile,the autocratic ruler is blessed with little domestic pressure and absence of audience cost.The relationship between FDI and political regime is very complex and composite.However,in case of developing country like Pakistan,regime less matters.To investigate the puzzle,the primary indicators of regime stability,regime durability and geographical significance has been explained and analyzed.Geographic indicator has been included to analyze the significance of Pakistan for international community especially for the major players of global politics and how these global players encourage their public and private sectors to go out and search markets in the developing world.Pakistan has been experiencing political instability since its inception in 1947 and the political arena has been dominated by military with regular intervals.As per the definitions of Freedom House and Economic Intelligence Unit(EIU),Pakistan is categorized under hybrid regime courtesy of the features of irregularities in elections,corruption,weak rule of law,weak civil society,media censorship,weak judiciary and government's pressure on opposition parties.According to the norms of regime stability,there shouldn't be an abrupt political change in a system and a particular political regime should be long-lasting.But in case of Pakistan,abrupt political changes have been part of the system that provides an impetus for lack of regime durability.Durability of regime refers to the legitimacy of a particular regime and as per the advocates of democracy,the democratic political system is more durable because in liberal democracies,the institutionalized processes of free and fair elections make the system more legitimate and justified.The developing or underdeveloped states faces the problems of political instability and lack of regime durability which negatively affects the quality of institutions and governments fail to formulate sound policies conducive for domestic and foreign investment.According to the data compiled by United Nations Conference on Trade and Development(UNCTD),FDI jumped from $359 billion in 1996 to $649 billion in 1998.Pakistan is blessed with huge natural resources,human capital,locational advantage and large market.However,it has not been able to benefit from the global enhancement of FDI.The only increase in the level of investment was recorded in 1996-97 and 2006-07 during the two dissimilar political regime types.While examining the primary indicators of political regime stability,durability and geographical significance,the primary question of the relationship between regime and FDI has been analyzed and special emphasis has been given to Pakistan in this regard.