KARACHI:
Terrorism scares foreign investment, as is obvious. Amid bomb blasts and suicide attacks from one end of Pakistan to another, Pakistan received the Foreign Direct Investment (FDI) of only $709 million in 2014/15, which is down by 58% from the previous year, also marking the lowest point since 2002/03.
Empirical studies conducted by independent economists suggest that a slight uptick in the “perceived risk of terrorism” can lead to an “outsized reduction” in the FDI that a country receives, causing a “significant damage” to its economy.
Writing in the latest edition of Finance and Development, a premier quarterly publication of the International Monetary Fund (IMF), economists Subhayu Bandyopadhyay, Todd Sandler and Javed Younas noted that increased terrorism in a particular area tends to depress the expected return on capital invested there, which shifts investment elsewhere.
