The impacts of political stability, inflation and selective macroeconomic variables on foreign direct investment in Afghanistan: an investigation of political risk

Abstract

Afghanistan besides of some suitable economic growth is still in political instability and has been faced with fragility and high fluctuations. In this study, multiple regression models based on secondary data analysis are used for Afghanistan through the period 1999-2019. The results show that the effect of inflation rate on attracting of Foreign Direct Investment (FDI) in Afghanistan are negative and significant. Also, the economic growth has positive effects on FDI but it is insignificant in this country. Furthermore, important results of this study imply that balance of payment, trade balance play positive role on FDI toward Afghanistan. There are positive effects of exports on FDI which is not significant whereas imports have negative impact on FDI which is significant at one percent level of significance. In addition, government should support balance of payment, trade balance to become positive for Afghanistan. Therefore, political stability has positive relation with FDI however it is not significant, Hence, there has been never preferred political stability for the attracting of FDI toward Afghanistan the finding of the study indicates that a high inflation is sign of political instability which has negative significant effect on FDI in Afghanistan. For sustainable Economic Growth of Afghanistan Preferred Political situation and low inflation are essential to attract Foreign Direct Investment towards Afghanistan.