THE NEXUS BETWEEN TERRORISM AND ECONOMIC GROWTH IN PAKISTAN: AN EMPIRICAL ANALYSIS USING THE AUGMENTED SOLOW GROWTH MODEL

Abstract

This research investigates the link between terrorism and economic growth in Pakistan through the use of yearly data for the period 1991–2026. The analysis adopts the Augmented Solow Growth Model and includes foreign direct investment, human capital and workers’ remittances as the primary factors of economic growth. We apply the Autoregressive Distributed Lag (ARDL) bounds testing approach to estimate the short-term and long-term relationships among variables. The results show a detrimental impact of terrorism on economic development and foreign direct investment and a positive impact of human capital and workers’ remittances on the long-run economic performance. Only the workers’ remittances have a substantial positive impact on economic growth at the short run. The error correcting process confirms the presence of a stable long-run equilibrium connection and diagnostic tests establish the resilience and reliability of the calculated model. The study updates the empirical evidence on the economic consequences of terrorism in Pakistan and stresses the need to strengthen security, promote investment, enhance human capital and facilitate the productive use of remittance inflows for sustainable economic growth.