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Factors influencing foreign direct investment in South Asian economies: A comparative analysis

Bishnu Kumar Adhikary (Graduate School of Business Administration, Kobe University, Kobe, Japan)

South Asian Journal of Business Studies

ISSN: 2398-628X

Article publication date: 6 March 2017

2370

Abstract

Purpose

The 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/approach

This study employs fully modified ordinary least squares and two-stage least squares estimation methods.

Findings

This 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/implications

This paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge.

Practical implications

This 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/value

This paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies.

Keywords

Acknowledgements

The author wishes to thank the Editors, Dr Shanti Gopalakrishnan and Dr Shaista E. Khilji, who handled this submission and provided fruitful comments. The author also extends thanks to the associated editors and anonymous referees for giving valuable advice that helped improve the quality of the paper. All errors are the author’s own.

Citation

Adhikary, B.K. (2017), "Factors influencing foreign direct investment in South Asian economies: A comparative analysis", South Asian Journal of Business Studies, Vol. 6 No. 1, pp. 8-37. https://doi.org/10.1108/SAJBS-10-2015-0070

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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