The Behavior of FDI in South Asian Countries

Majeed, Muhammad Tariq and Syed, Shabib Haider (2006): The Behavior of FDI in South Asian Countries. Published in: The Forman Journal of Economic Studies , Vol. 2, No. 1 (2006): pp. 1-8.

Abstract

This paper analyzes the behavior of FDI in South Asian countries using panel data for the period 1970-2004. We applied fixed effects model to identify the factors that determine FDI inflows. The analysis shows that GDP, trade openness, real exchange rate, labor force and health expenditures affect FDI positively and significantly. While the impact of military expenditures and external debt on FDI is negative and significant. These variables reflect the non-productive use of resources and create a negative signal for foreign investors. The study further finds that the relationship between FDI and domestic investment is complimentary but insignificant. This weak relationship explains the fact that domestic investment performance is poor in these countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Investment, Foreign Investment,FDI
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

References

Akhtar, Mohammad H (2000). The Determinants of Foreign Direct Investment in Pakistan: An Economic Analysis, The Lahore Journal of Economics, 5(1), 1-22.

Asiedu, E. (2002). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1), 107-119.

Cushman, D. (1987). The Effects of Real Wages and Labor Productivity on Foreign Direct Investment. Southern Economic Journal, 54(1), 174-185.

Froot, K.A., and Stein, J.C. (1991). Exchange Rates and Foreign Direct Investment: An Imperfect Capital Market Approach. Quarterly Journal of Economics, 106(4), 1191-1217.

Khan, Ashfaque H (1997). Foreign Direct Investment in Pakistan: Policies and Trends The Pakistan Development Review, 36 (4), 959-985.

Nunnenkamp, P. (1997). Foreign Direct Investment in Latin America in the Era of Globalized Production, Transnational Corporations, 6 (1), pp. 51-81.

Root, Franklin R., and Ahmed A Ahmed (1979). Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries, Economic Development and Cultural Change 27(4), 751-768.

Shah and Ahmed (2003). The Determinants of Foreign Direct Investment in Pakistan: an Empirical Investigation. The Pakistan Development Review, 42(4), 697-714.

Shamsuddin, Abul, F.M (1994). Economic Determinants of Foreign Direct Investment in Less Developed Countries. The Pakistan Development Review, 3(31), 41-51.