Mr. Ahmad Zubair Baha, Dr. Nassir Ul Haq Wani

Volume 1 Issue 4 | Oct 2018

DOI: 10.31841/KJEMS.2021.71

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Abstract

This research study investigates the determinants of inward FDI in Afghanistan by taking time series data over the period 2005-2017. The study employed ordinary least square (OLS) method to determine the effect of market size, trade openness, infrastructure, corruption, GDP, inflation and exchange rate (independent variables) on Foreign Direct Investment (dependent variable). The results indicate that market size, trade openness and official exchange rate are the significant and positive determinants of inward FDI inflow in Afghanistan while as, Infrastructure, Corruption, GDP and Inflation are negative determinants of inward FDI. The results of the study recommend that government must improve GDP growth, increase trade openness, build infrastructure and minimize corruption and inflation. Since the result of the study revealed that Infrastructure is not positively related to FDI, infrastructure facilities must be put in place to promote businesses and reduce the cost of doing business in the country. As Inflation is also negative determinant of FDI, the government must maintain monetary policy framework aimed at controlling the rate of inflation. Government must rely on its own capabilities as well as specialized international institutions to achieve a better institutional reform, and learn the best international practices in fighting against corruption.