The Determinants of Foreign Direct Investment in the SAARC Countries: An Empirical Analysis
Al-Amin, Zubayda Sultana & Muhammad Shahin MiahFaculty of Business Studies, University of Dhaka, Dhaka, Bangladesh
Email: mshahin@du.ac.bd
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Objectives: This study investigates the factors that influence the location of
Foreign Direct Investment (FDI) in the member countries of the SAARC. The
significance of this research lies in its capacity to provide policymakers with
valuable insights and enhance their understanding of the determinants impacting
FDI in the SAARC region.
Methodology: We collect data from the World Development Indicators (WDI)
database spanning the period from 2000 to 2022. We use multiple linear regression
(MLR) to test our conjectures using STATA. We conduct a comprehensive
examination of economic, institutional, and demographic issues. In addition, we
employ Dunning's Ownership-Location-Internalisation paradigm (DOLI) as a
guiding framework to identify and examine hypotheses on FDI.
Findings: We find that economic conditions have a range of consequences on FDI,
which have significant ramifications. The findings highlight the heterogeneous
effects of the manufacturing sector on FDI, with substantial significance observed
in the specific nations, while lacking statistical significance in others. The analysis
also uncovers diverse effects of the quantity and quality of the labor forces,
exhibiting positive correlations in certain cases and minimal influence in other
scenarios. This statement emphasizes the significant importance of proactive trade
tactics, emphasizing the complex connections between FDI and trade openness,
market potential, regulatory environment, tax policies, and savings.
Originality/Value: Our study contributes to the literature of FDI by providing
empirical evidence. Moreover, this paper brings insights for policymakers and we
believe that our findings can be utilized to create a favorable atmosphere for foreign
investors. This, in turn, can lead to an increase in FDI and contribute to the
development of a strong and sustainable economy across the SAARC area.
Practical Implications: The findings help policymakers focus on improving
infrastructure, stabilizing prices, and strengthening key sectors to better attract and
sustain FDI in SAARC countries.
Limitations: The study is limited by the use of secondary data and a single panel
regression model, which may not capture country-specific and non-economic
factors that affect FDI.