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Intra-Regional FDI and Economic Integration in South Asia: Trends, Patterns and Prospects


  • Prema-chandra Athukorala


This paper examines trends and patterns of intra-regional FDI in South Asia, with a focus on the potential for integrating production processes among countries in the region through further trade and investment policy reforms. The empirical evidence pieced together from scattered sources suggests that horizontal (market seeking) FDI has continued to dominate South Asian intra-regional FDI, with a significant shift in recent years in favour of services sector activities. Vertical (efficiency seeking) FDI in the region has remained confined to a few product lines, predominately garments, and also a few industries in which the availability of specific natural resources plays an important role in the site selection decisions of firms. In other industries, including electronics and electrical goods in which global production sharing is heavily concentrated, there is no evidence of notable cross-border operations by regional firms. The limited achievement so far in fostering cross-border production sharing through vertical FDI has been the outcome of unilateral, rather than region-wide, trade and investment policy reforms.

Suggested Citation

  • Prema-chandra Athukorala, 2013. "Intra-Regional FDI and Economic Integration in South Asia: Trends, Patterns and Prospects," Departmental Working Papers 2013-05, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2013-05

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    References listed on IDEAS

    1. V N Balasubramanyam & V Mahambare, 2003. "Foreign direct investment in India," Working Papers 539987, Lancaster University Management School, Economics Department.
    2. Aradhna Aggarwal, 2008. "Regional Economic Integration and FDI in South Asia - Prospects and Problems," Macroeconomics Working Papers 22141, East Asian Bureau of Economic Research.
    3. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
    4. Meenu Tewari, 2008. "Deepening Intraregional Trade and Investment in South Asia - The Case of the Textiles and Clothing Industry," Trade Working Papers 22265, East Asian Bureau of Economic Research.
    5. Meenu Tewari, 2006. "Adjustment in India's Textile and Apparel Industry: Reworking Historical Legacies in a Post-MFA World," Environment and Planning A, , vol. 38(12), pages 2325-2344, December.
    6. Maurice Schiff & L. Alan Winters, 2003. "Regional Integration and Development," World Bank Publications, The World Bank, number 15172.
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    Cited by:

    1. Asian Development Bank Institute, 2017. "Asian Economic Integration Report 2016," Working Papers id:11730, eSocialSciences.

    More about this item


    South Asia; foreign direct investment; production networks; free trade agreements (FTAs);

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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