Determinants of Foreign Direct Investment: A Cross-Country Analysis of South Asia

Abstract

The study presents a cross-country analysis of the determinants of FDI in selected South Asian countries, namely Bangladesh, India, Pakistan, and Sri Lanka. The primary determinants considered are gross domestic product, gross domestic product per capita, inflation, lending interest rate, openness of trade, and the CPIA index. The study uses panel data analysis to estimate the impact of various factors on FDI inflows to these countries from 1996 to 2022. The study results indicate that gross domestic product is negatively associated with FDI in the fixed effect model. In contrast, GDP per capita and GDP growth rate are negatively associated in the random effect model, and they are the most important determinants of FDI in South Asian countries. The findings suggest that economic, political, institutional, and social factors can attract foreign investment and promote economic growth and development in these countries. Policymakers should focus on creating a favorable business environment that addresses these factors to attract more FDI and unlock the region's economic growth potential.