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Determinants of Foreign Direct Investment in SAARC Nations: An Econometric Investigation


  • P Srinivasan


The present study employs fixed effects and random effects models to explore the determinants of Foreign Direct Investment (FDI) in selected South Asian Association for Regional Cooperation (SAARC) countries for the period 1970-2007. In order to choose an appropriate model among the fixed effects and random effects estimator, the Hausman specification test was conducted and its result supported the random effects model regarding the determinants of FDI. The empirical results reveal that the market size, GDP per capita, trade openness, infrastructure facilities, inflation, degree of risk and uncertainty, and SAARC country formation are the most significant factors in determining FDI in the SAARC countries. Besides, the results show that other variables such as human capital, degree of industrialization, real exchange rate, domestic investment and terms of trade are insignificant, implying that these factors do not play any significant role in attracting FDI in SAARC countries. The findings indicate that the governments of the SAARC countries should adopt incremental efforts to enhance economic growth, enlarge GDP per capita, implement more successful open-door policies, facilitate better infrastructural facilities and provide effective policy framework on macroeconomic stability to successfully attract appropriate FDI in the region.

Suggested Citation

  • P Srinivasan, 2011. "Determinants of Foreign Direct Investment in SAARC Nations: An Econometric Investigation," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(3), pages 26-42, August.
  • Handle: RePEc:icf:icfjme:v:09:y:2011:i:3:p:26-42

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    Cited by:

    1. Shiba Shankar PATTAYAT, 2016. "Examining the determinants of FDI inflows in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(607), S), pages 225-238, Summer.
    2. Muhammad Ullah & Kazuo Inaba, 2014. "Liberalization and FDI Performance: Evidence from ASEAN and SAFTA Member Countries," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 3(1), pages 1-24, December.
    3. Wasseem Mina, 2017. "The Race to the Top: Institutional Clusters and World FDI Shares," Working Papers 1136, Economic Research Forum, revised 09 2003.
    4. Liu, Zhiyuan & Xu, Yue & Wang, Peijie & Akamavi, Raphaël, 2016. "A pendulum gravity model of outward FDI and export," International Business Review, Elsevier, vol. 25(6), pages 1356-1371.
    5. Shiba Shankar PATTAYAT, 2016. "Examining the determinants of FDI inflows in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(607), S), pages 225-238, Summer.
    6. repec:ibn:ijefaa:v:9:y:2017:i:11:p:207-217 is not listed on IDEAS
    7. repec:spr:manint:v:53:y:2013:i:6:d:10.1007_s11575-013-0178-z is not listed on IDEAS
    8. Eckhard Janeba, 2016. "Regulatory Chill and the Effect of Investor State Dispute Settlements," CESifo Working Paper Series 6188, CESifo Group Munich.
    9. Yuko Hashimoto & K. M. Wacker, 2016. "The role of information for international capital flows: new evidence from the SDDS," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(3), pages 529-557, August.
    10. Shah, Mumtaz Hussain & Faiz, Mehreen, 2015. "Terrorism and Foreign Direct Investment: An Empirical Analysis of SAARC Countries," MPRA Paper 82008, University Library of Munich, Germany.
    11. Rubab Khan & Hijaab Zahra, 2016. "Impact of Domestic Interest Rate on Foreign Direct Investment (A case study of Pakistan)," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(4), pages 220-230, December.
    12. Bekhet, Hussain Ali & Al-Smadi, Raed Walid, 2015. "Determinants of Jordanian foreign direct investment inflows: Bounds testing approach," Economic Modelling, Elsevier, vol. 46(C), pages 27-35.
    13. repec:agr:journl:v:1(614):y:2018:i:1(614):p:15-30 is not listed on IDEAS
    14. Hussain Ali Bekhet & Raed Walid Al-Smadi, 2016. "The dynamic causality between FDI inflow and its determinants in Jordan," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(1), pages 26-47.
    15. Antonio Saravia & Gustavo Canavire-Bacarreza & Fernando Rios-Avila, 2012. "Intellectual property rights, foreign direct investment and the shadow economy," DOCUMENTOS DE TRABAJO CIEF 013514, UNIVERSIDAD EAFIT.
    16. Mushtaq AHMAD & Ferhan K. AHMAD & Muhammad Ali NASIR & Gulzar KHAN, 2015. "Internal Absorption and Foreign Direct Investment Inflows: A new approach towards Market Size," Journal of Economics and Political Economy, KSP Journals, vol. 2(3), pages 400-410, September.
    17. Jun, Sangjoon, 2015. "The Nexus between FDI and Growth in the SAARC Member Countries," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 19(1), pages 39-70, March.

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