Investigating the Influence of Ease of Doing Business over Foreign Direct Investment Inflows Mediated By Firm Creation and Moderated By Financial Sector Development

Abstract

A decent level of foreign direct investment (FDI) is something every country would certainly endeavour to receive. However, it has been historically observed that some countries receive much more FDI than others. One reason for this could be the ease with which a foreign company can start or operate its business in a host economy. The current study investigates the impact of ease of doing business on FDI in Pakistan with the mediating role of firm creation and the moderating effect of financial sector development. The population of this study included people who were practically engaged in the decision-making process in businesses in Pakistan. They are Entrepreneurs, Business Owners, Managers and Financial Officers. A sample of 373 respondents was analysed using Structural Equation Modelling (SEM) through SmartPLS-4 statistical package. It’s found that ease of doing business has a significant and positive direct and indirect impact on inward FDI through firm creation and a negative moderating effect through financial sector development. These findings strongly support the hypothesis that an attractive business climate, which is determined by streamlined laws, clear-cut procedures, and effective institutional structures, favours the capacity of a nation to attract more foreign investors. To the policymakers, these findings highlight the need to improve the regulatory environment and financial infrastructure, so that enhanced FDI inflows may be utilised to promote long-term economic growth and economic development of the country.