Economic Determinants of Foreign Direct Investment: Empirical Evidence from South Asian Economies

Abstract

This study aims to explore the economic factors of foreign direct investment in five South Asian economies, including India,Pakistan, Bangladesh, Nepal, and Sri Lanka. Data period is ranging from 1996 to 2020. PMG panel ARDL model is used for estimating the coefficients of the investment demand function. I'm, Pesaran and Shin W-test and Levin, Lin, and Chu t-testsare used for finding stationary of the data. Panel Kao residuals co integration technique is applied for detecting the long-run co integration among the variables. This study finds that, first, economic growth, energy consumption, and education are positively contributing towards the inflow of FDI; second, gross capital formation, government debt, inflation, and debt servicing are negatively affecting the inflow of FDI in these economies. Based on the empirical findings, it is recommended that government should play an effective role in improving the economic growth, bringing stability in prices, and investing in the education sector to make the inflow of FDI more attractive. Implementation of effective debt-management policies also stands radical for the inflows of foreign direct investment.