Exploring the Dynamic Interplay Between Financial Development and Economic Growth in Pakistan
DOI:
https://doi.org/10.70112/ajms-2026.15.2.4353Keywords:
Economic Growth, Financial Development, Error-Correction Models, Cointegration, Granger Causality, PakistanAbstract
This study examines the impact of governance quality, the corporate tax rate, and exchange rate volatility on foreign direct investment (FDI) inflows in 16 emerging countries over the period 2003–2017. Considering the persistence of potential endogeneity issues, the study employs the system generalized method of moments (GMM), a dynamic panel data model, to estimate the variables of interest. The results provide evidence that governance quality positively and significantly affects FDI inflows, whereas the corporate tax rate has a negative effect. No significant relationship is found between FDI inflows and exchange rate volatility. From a policy and strategic perspective, the study suggests that emerging economies should reconsider their tax imposition mechanisms to reduce the burden of corporate taxation. Simultaneously, greater emphasis should be placed on maintaining strong governance performance to ensure a favorable business environment. Overall, the study highlights the importance of creating a business-friendly institutional environment to attract foreign investment.
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