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Factors influencing foreign direct investment in South Asian economies

Factors influencing foreign direct investment in South Asian economies PurposeThe purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh, India, Pakistan, Sri Lanka, and Nepal, and to examine whether these factors are the same for each.Design/methodology/approachThis study employs fully modified ordinary least squares and two-stage least squares estimation methods.FindingsThis study shows that South Asian economies have a number of FDI determinants in common. For example, market size and human capital are the two most common factors attracting FDI in each country (except for Nepal, which revealed a negative correlation between FDI and market size). Other factors, such as infrastructure, domestic investment, lending rates, exchange rates, inflation, financial stability/crisis, and stock turnover entered into regression with both positive and negative signs, thereby indicating that the underlying theories on FDI do not provide a clear prediction of the direction of the effect of a particular variable on FDI.Research limitations/implicationsThis paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge.Practical implicationsThis paper provides evidence to show that the determinants of FDI are indeed country-specific. Thus, to design a suitable FDI policy, it would not be wise to solely rely on other economies’ FDI experiences.Originality/valueThis paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

Factors influencing foreign direct investment in South Asian economies

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2398-628X
DOI
10.1108/SAJBS-10-2015-0070
Publisher site
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Abstract

PurposeThe purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh, India, Pakistan, Sri Lanka, and Nepal, and to examine whether these factors are the same for each.Design/methodology/approachThis study employs fully modified ordinary least squares and two-stage least squares estimation methods.FindingsThis study shows that South Asian economies have a number of FDI determinants in common. For example, market size and human capital are the two most common factors attracting FDI in each country (except for Nepal, which revealed a negative correlation between FDI and market size). Other factors, such as infrastructure, domestic investment, lending rates, exchange rates, inflation, financial stability/crisis, and stock turnover entered into regression with both positive and negative signs, thereby indicating that the underlying theories on FDI do not provide a clear prediction of the direction of the effect of a particular variable on FDI.Research limitations/implicationsThis paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge.Practical implicationsThis paper provides evidence to show that the determinants of FDI are indeed country-specific. Thus, to design a suitable FDI policy, it would not be wise to solely rely on other economies’ FDI experiences.Originality/valueThis paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies.

Journal

South Asian Journal of Business Studies – Emerald Publishing

Published: Mar 6, 2017

References

  • Determinants of foreign direct investment in OECD member countries
  • Factors influencing foreign direct investment (FDI) in ‘South’ and ‘Southeast’ Asian economies
  • Determinants of, and the relationship between FDI and economic growth in Bangladesh
  • Exchange rate flexibility, volatility, and domestic and foreign direct investment
  • FDI and trade – two-way linkages?
  • The effects of corruption on FDI inflows
  • Determinants of foreign direct investment in Latin America
  • Determinants of foreign direct investment in Malaysia