Abstract
This empirical study investigates the determinants and growth effect of FDI in case of four South Asian countries over the period of 1995-2000. It comprises two major analytical parts. Firstly, we incorporate a gravity model equation using panel data in order to investigate potential determinants of foreign direct investment in these countries. Secondly, we use a growth model equation to investigate growth effect of foreign direct investment in the countries. In both analyses, we employ Arellano-Bond dynamic panel system method of moment estimation method. The results derived from this study suggest that: (1) the pulling, pushing and cyclical factors are crucially important in determining FDI in South Asian countries; (2) foreign direct investment in South Asian countries are significant and positively associated with growth rate, but seem to be having average supportive to the growth rate in these countries.
Highlights
Following liberalization policies initiated by most of the South Asian countries in 1990s and early 2000s; these countries have been great attention of developed and emerging economies associated with moving FDI into this region
This study focuses on investigating the determinants and growth effect of FDI flow, by adopting gravity and endogenous growth models, respectively, in case of Bangladesh, India, Pakistan and Sri Lanka, by employing the system generalized method of moments (GMM) estimation
The results suggest that distance and both home and host country characteristics significantly play crucial role in determining the FDI flows into the South Asian region
Summary
Following liberalization policies initiated by most of the South Asian countries in 1990s and early 2000s; these countries have been great attention of developed and emerging economies associated with moving FDI into this region. As far as the home countries and trend of FDI in the region is concerned, presently South Asian countries are becoming important destinations of the leading sources of FDI such as U.K, U.S.A, Mauritius, Netherlands, Singapore, Germany, France, Japan, Republic Korea, Switzerland, Japan, China, Singapore, Saudi Arabia, Germany, United Arab Emirates, Malaysia, Canada, Egypt and Norway (ADB, 2007). These home countries have increased their private investment in South Asia, especially after 2000s. This empirical study takes interest investigating determinants and growth effect of FDI in these countries
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