Stimulating Intra-regional Investment in SAARC

Abstract

Whilst unilateral liberalization of FDI policy regimes in South Asia have made significant headway and contributed to increased FDI inflows, as a region South Asia’s success in attracting FDI, compared to other more successful trading blocs remains limited. Notably, intra-regional investment volumes remain minuscule in comparison to the already dismal level of intra-regional trade. Despite a lapse of over a decade after the implementation of SAFTA, the recent past has witnessed renewed interest in a regional investment agreement in SAARC. This article evaluates how useful a regional investment framework would be for the SAARC. The article argues that whilst a regional investment framework is critical in spurring both intra- and extra-regional FDI, it is by no means the only determinant in attracting FDI. As the experience in ASEAN suggests, in addition to a regional framework, at the country level, each SAARC member state must strive to undertake broad-based reforms to improve their individual country investment climate if they aspire to attract greater volumes of both intra- and extra-regional FDI to support its trade expansion. The article also goes on to draw lessons and best practice from the ASEAN Investment Agreement in going about designing and implementing a Regional Investment Agreement in SAARC.