Foreign direct investment in south asia : Trends and prospects

Abstract

Foreign investment for these countries is an important strategy to achieve the objectives of increasing industrial production to fulfill the basic needs of people, to generate maximum employment opportunities, to attain high growth regime, to pave way for the improvement in balance of payments. Keeping in view the importance of FDI in regional integration scheme, there is a need to look into the growth and performance of foreign direct investment inflows as well as outflows of South Asia Nations. Therefore study's objectives are to examine position of South Asia nations in FDI inflows and outflows from world during 1990-2010. To study the growth of FDI in South Asia Nations during 1990-2010. to analyze the performance of South Asia Nations in terms of different FDI indicators. to examine the pattern of foreign direct investment of South Asia Nations and to study constraints and prospects of foreign direct investment of South Asia Nations. Keeping in mind the nature of the study, secondary data has been calculated from the different sources like UNCTAD World Investment Report's various reports of SAARC economies etc. The growth rate of FDI inflows in South Asia (24.77 percent) is much more than other developing economies (14.45 percent) and Asia (13.99 percent) during 1990-2010, still the inflows are not sufficient for the development of the region. The maximum average contribution in percentage share of South Asia's FDI inflows is of India (78.02), followed by Pakistan, Bangladesh and Sri Lanka (12.07 percent, 5.69 percent, 2.93 percent) for 1990-2010. Regarding FDI out flows, the growth rate of FDI out flows in South Asia (47.97 percent) is much more than developing economies (15.26 percent), developed economies (11.43 percent) and Asia (14.67 percent) during 1990-2010. The comparative analysis of FDI inflows and outflows, it clearly shows that growth of FDI outflows is much more as compared to the growth of FDI inflows in developing economies, Asia and South Asia during 1990-2010. The maximum average contribution in percentage share of South Asias's FDI outflows is of India (89.28 percent) followed by Pakistan (5.76 percent), Sri Lanka (3.65 percent) and Bangladesh (1.31 percent) during 1990-2010. The comparative analysis of the percentage share of inflows and outflows, it clearly shows that the average of the percentage share of South Asia's inflows are much more than the average of percentage shares of South Asia FDI outflows during 1990-2010. They are various potentials of intra-regional FDI, yet investment from other countries outside is not satisfactory. This is due to the prevalence of some hindrances in South Asian countries which are acting as bottlenecks to the smooth flow of investment both intra-regional and outside the region, like, difference in size of economics, trade barriers, poor condition of infrastrure, appropriate and effective banking, lack of cross-border facilities, political factors etc. The study suggests that FDI in South Asia is very closely related to high economic growth of the region and most areas in these countries are under developed whereas huge natural resources exist in these regions, which can attract FDI for high growth.