Impact of Capital Inflows on Domestic Investment: Evidence from Panel Data

Abstract

Investment significance in any country cannot be ignored for its direct and indirect influences on the growth rate of the economy. Foreign capital inflows are one of the major determinants of domestic private investment. Hence, this study analyzes the effect of two kinds of foreign capital inflows, i.e. inward foreign direct investment and inward foreign remittances on domestic investment covering a sample of five South Asian economies from 1976 to 2017. The findings of the study reveal that both types of capital inflows raise the domestic investment and the role of remaining variables on investment is also positive and significant. The study recommended that steps should be undertaken to increase these foreign capital inflows to raise the domestic investment in these countries.