Foreign Direct Investment in South Asia: Policy, Trends, Impact and Determinants
This study examines the impact of foreign direct investment (FDI) on economic growth, domestic investment and exports in South Asian economies (India, Pakistan, Bangladesh, Sri Lanka and Nepal). Emphasis is put on analyzing the impact of infrastructure availability on FDI inflow. This objective is important from the point of view of most South Asian countries, which lack adequate infrastructure facilities.
Using a panel cointegration estimation, the study reveals that FDI and all its potential determinants have a long-run equilibrium relationship. The major determinants of FDI in South Asia are market size, labor force growth, infrastructure index and trade openness. The most significant and influential of these are market size and labor force growth. Overall, South Asian countries need to maintain growth momentum to improve market size, frame policies to make better use of their abundant labor forces, improve infrastructure facilities and follow more open trade policies for attracting more FDI.
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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