Endnotes

¹ Foreign Direct Investment refers to FDI inflow.

² In this study, South Asia is used to refer to only five countries: India, Bangladesh, Pakistan, Sri Lanka and Nepal.

³ See Kruger, 1975 for rent seeking activities in India.

⁴ During 1981-91, the East Asian countries of Republic of Korea, Malaysia and Thailand experienced 9.1, 5.7 and 8.2 per cent GDP growth and 11.3, 11.8 and 15.5 per cent growth of exports of goods and services respectively. The growth of GDP and exports of these countries during the 1990s fell slightly below the average growth of the 1980s due to the economic crisis in 1997-98. During 1991-2001, the three countries registered 5.4, 6.1 and 3.2 per cent GDP growth and 15.9, 10.5 and 8.5 per cent export growth, respectively.

⁵ Quantitative restrictions, which were in place for most consumer goods, were completely abolished in 2001.

⁶ India has taken considerable steps toward the reduction of tariffs, which fell from 35.3% in 1997-98 to 20% in 2003-04.

⁷ The exchange rate system was transformed in less than two years from a discretionary, basket pegged system to a largely market-determined unified exchange rate.

⁸ Domestic labor laws no longer apply to special economic zones in India.

⁹ Its trade as a percentage of GDP (more than 40%) is the highest in South Asia.

¹⁰ Trade Policy Review Sri Lanka: 2004, www.wto.org

¹¹ The crisis year 1991 has been included while calculating the GDP growth rate for 1991-2002. The growth excluding the crisis period is 6.2 percent for the same period.

¹² All the tables mentioned in the Text are given in Appendix-B at the end.

¹³ See www.dipp.gov.in

¹⁴ For details, see www.rbi.org.in

¹⁵ These industries are liquor, tobacco, defense equipment, industrial explosives and hazardous chemicals. Statutory environmental clearances are required.

¹⁶ Restricted related to setting up business in urban area and designated "industrial areas."

¹⁷ See http://dipp.gov.in for day-to-day updates on issues related to foreign investment.

¹⁸ Opened up recently to a limited extent.

¹⁹ The corporate tax rate for foreign companies is 40%. The net tax rate is far lower than this, however, on account of various deductions and exemptions available under the tax laws.

²⁰ The general condition is that the manufacturing enterprises have to export 80% of output while the service sector has to export 70% of its output.

²¹ Investment Policy Review of Sri Lanka (UNCTAD 2003).

²² By the end of 2001, there were 30 DTTs in force and another seven pending. They cover all the principal FDI home countries.

²³ The value of spare parts should not, however, exceed 10% of the total C&F value of the machinery.

²⁴ Fore details see, Chitrakar Ramesh and John Weiss (1995): "Foreign investment in Nepal in the 1980s: A cost benefit evaluation," The Journal of Development Studies, Vol.31, No. 3 February.

²⁵ Since Nepal is a small country with a unique ecosystem, the government is sensitive to the environmental impact of industries. Projects must go through environmental impact assessments and initial environmental examinations.

²⁶ Although this appears to be contradicted by the central bank, which explicitly states that it does not guarantee convertibility on the capital account.

²⁷ All the tables are given in Appendix-B.

²⁸ The UNCTAD FDI inward performance index is a measure of the extent to which a host country receives inward FDI relative to its economic size. It is calculated as the ratio of the country’s share in global FDI inflows to its share in global GDP. See Annex 1 for details of the FDI potential index.

²⁹ Physical capital required two sets of information, i.e., the initial base year for the capital stock and the rate of depreciation, which are difficult to obtain.

³⁰ To substantiate further, Granger causality analysis is done for each country between domestic investment growth and FDI growth, as both are stationary variables at levels. The results reveal that FDI Granger causes domestic investment in Bangladesh and Sri Lanka.

³¹ These can be called as pull factors. However, there are push factors which are equally important for FDI inflow into developing countries such as recession in developed economies, low international interest rates etc. The emphasis of the present study is to examine the pull factors responsible for FDI inflows into south Asian countries.

³² Though most previous studies used secondary enrollment of human capital for large number of cross country studies, the same data is not available for South Asian countries for sufficient numbers of years for a meaningful econometrics exercise.

³³ Generally, the panel cointegration tests developed by Kao and Chiang (1999) and Pedroni (1995, 1997) are also widely used.

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