Governance institutions in the face of terror: a study of domestic investment in Pakistan

Burak Sungu, Irfan Ullah and Farrah Yasmin

International Journal of Development Issues, 2025, vol. 24, issue 3, 416-433

Abstract: PurposeThis study aims to investigate the impact of terrorism on domestic investment in Pakistan during the first two decades of the 21st century. This study pays special attention to the interaction between violence, governance and economic freedom to isolate the institutional consequences of terrorism.Design/methodology/approachAn autoregressive distributed lag model with error-correction is used.FindingsThe empirical conclusions are twofold. First, terrorism has an adverse but indirect effect on domestic capital formation. This adverse effect is particularly pronounced in the short run. Second, the indirect effects of terrorism are transmitted through institutional channels only. In other words, the negative influence terrorism exerts on capital formation is solely dependent on its harmful impact on governance institutions. There is no evidence of non-institutional transmission mechanisms.Originality/valueLiterature so far has focused mostly on physical destruction and loss of life associated with violent conflict. This paper sheds light on the institutional impact, which is oft ignored but significantly more consequential.

Keywords: Terrorism; Domestic investment; Governance; Corruption (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijdipp:ijdi-10-2024-0273

DOI: 10.1108/IJDI-10-2024-0273

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