Business Environment in South Asia: Foreign-Owned Firms’ Perspectives

Rahim Quazi,Sudhir Tandon

doi:10.5539/ibr.v11n7p1

Abstract

This paper studies the foreign-owned firms’ (hereinafter, FOFs) perspectives about selected indicators of business environment in four South Asian countries - Bangladesh, India, Pakistan and Sri Lanka. For the last few decades, these countries have eagerly sought to increase the inflow of foreign capital. Using the World Bank’s Enterprise Survey 2017 data, this study identifies political instability, poor infrastructure, and pervasive corruption as the three biggest obstacles that FOFs face in their business operations in these countries. The other obstacles include inadequately educated workforce, customs and trade regulations, crime, theft and disorder, tax administration, business licensing and permits, and access to finance. This study also finds that since 2007 the business environment for FOFs has improved remarkably in Bangladesh, improved slightly in India, improved modestly in Sri Lanka, but worsened noticeably in Pakistan. This study adds to our knowledge of factors that affect the dynamics of foreign capital inflow, which should be helpful in devising strategies to attract more foreign capital to developing countries.

Highlights

Global investors use foreign direct investment (FDI) as a means to secure controlling interest in a foreign business enterprise via acquiring ownership of capital
Sri Lanka has the oldest firms, Pakistan has the highest percentage of firms with domestic and government ownership, Bangladesh has the highest percentage of firms registered as sole proprietors, and India has the highest percentage of firms that adhere to international standards of quality certification and external audits
Three hurdles are identified among the biggest hurdles in all four sample countries – political instability

Summary

Introduction

Global investors use foreign direct investment (FDI) as a means to secure controlling interest in a foreign business enterprise via acquiring ownership of capital. There are four countries in South Asia (namely Bangladesh, India, Pakistan and Sri Lanka) that have benefited from higher FDI inflows over the last several decades. These countries, led by India, have witnessed a massive rise in their annual FDI inflows from a meager $0.55 billion (0.1% of combined GDP) in 1990 to nearly $50 billion in 2016 (1.8% of combined GDP) (World Bank 2017a). Comparing the results with a previous study (Quazi and Quddus 2009), this present study finds that since 2007 the business environment for FOFs has improved remarkably in Bangladesh, improved slightly in India, improved modestly in Sri Lanka, but worsened noticeably in Pakistan. The rest of the paper is organized as follows: section 2 provides a review of the literature, section 3 discusses the data and methodology, section 4 presents the results, and the concluding section 5 provides a brief discussion of the policy implications of the findings of this study

Literature Review

Data and Methodology

Results from Enterprise Surveys 2017

Policy Implications and Conclusions