Impact of Foreign Direct Investment On Gross Domestic Product of SAARC Countries

2020
UNIVERSIT
Y OF
KARACHI
INTERNATIONAL
ASSIGNMENT
Impact of Foreign Direct Investment on Gross Domestic Product in SAARC Countries
ASSIGNMENT OF INTERNATIONAL FINANCE

NAME:Riaz Ahmed
SEAT NO:P19573089
EMAIL:Riaznoorsajidi7@gmail.com
SUBJECT:International Finance
COURSE NO: EF-521
SUBMITTED TO:Miss Rummana Zaheer
Impact of Foreign Direct Investment on Gross

Domestic Product in SAARC Countries.
Abstract: The study is conducted to find out the impact of foreign direct
investment (FDI) on growth domestic product in SAARC countries. This
relationship is tested by applying multiple correlation models. The
modification in gross domestic product is taken as dependent variable
whereas FDI and inflation are examine as independent variables. The info is
utilized which is comprises from 1981 to 2010, of SAARC Countries.
Collected from the world data bank. The result indicates that the complete
model is important. There’s a positive and outstanding relationship between
GDP and FDI while an insignificant relationship between GDP and inflation.
Keywords: GDP, FDI. CPI, SAARC.

Introduction: There
are several factors that play important roles in
capital formation and economic growth. These factors may well be
completely different across countries with regard to the geographical,
geological, technological progresses, politics, and institutional structures. The
aim of this study is to research the Impact of Foreign Direct Investment on
Gross Domestic Product of SAARC Countries over the period 1980-2019.
(FDI) Foreign Direct Investment plays significant role in the economic
development of a country. When the industrial revolution, FDI is
contemplated in concert of the main part of the economic development. FDI
helps the host country to boost infrastructure, standard of living and living
conditions of general public. Developing and underdeveloped countries are
keen about economically developed countries for support so as to realize the
economic stability. Developed countries do their investments in several
sectors particularly in weak sectors of the economy wherever the host country
doesn't have enough resources to ascertain those sectors. By doing this
developed countries are able to get most good thing about their investment
and it offers the chance to host countries to strengthen their weak sectors and
to make a lot of employment opportunities. Asian country being an under-
developed country is troubled since its independence to boost all the sectors
of economies. GDP refers to the value of all final merchandise associated
services made at intervals a rustic during a given period. Thought-about it’s
usually thought-about an indicator of growth and normal of living for a
country. Inflation once the value of most goods and services continues to rise
upward. It’s measured by the buyer price level (CPI). SAARC the South
Asian Association for Regional Cooperation, is an economic and geopolitical
organization that was established to market socio-economic development,
stability, and welfare economics, and collective independency within its
member nations. Founded throughout a summit in 1985, SAARC’s initial
members embody Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and
Sri Lanka. Thanks to fast growth at intervals the region, Afghanistan received
full-member standing in 2005 and countries are thought-about observers. Its
head quarter is in Kathmandu, Nepal. SAARC respects the principles of
sovereign equality, territorial integrity, and national independence because it
strives to achieve sustainable economic growth.
LITERATURE REVIEW
Abbas et al (2011) conducted a study to examine the influence of FDI and
CPI on the GDP of SAARC member nations. The study concluded that the
general model in these countries developed a positive relationship between
FDI and GDP, while negative relationship between Consumer Price Index
and GDP. This conclusion was tested using the multiple regression models.
The data of the SAARC countries ranged from the year 2001 to 2010.Falki
(2009) arrange a study to elaborate the impact of FDI on GDP in Pakistan.
The study includes the data from1980 to 2006 and the data source is the
Handbook of Pakistan economy and held variables such as domestic
variables, labor force and foreign invested capital.Falki used the endogenous
theory of growth and a regression. Adam & Tweneboah (2009) conducted an
independent study on FDI and the stock market development in the country
and found that FDI in Ghana had a positive impact on the development of the
economy and the stock market. The examination included data of market
capitalization as a proportion of the local GDP and Ghana cedi and Dollar
exchange and the net FDI influx of the quarters between the years 1991 to
2006. With the use of multivariate co-integration analysis and the Vector
Error Correction Model., the study revealed that the relationship between FDI
and the Ghanaian stock market will be beneficial in the long run for the
country.Md. Gazi Salah Uddin et al 2008. A time-series analysis was also
employed to prove the causal relationship between FDI and economic growth
of Bangladesh using annual data from 1975 to 2005 The Granger Causality
test and Error Correction Models were employed taking care of stochastic
properties of the variables. Time series analysis indicates the causal nexus
between export, FDI and GDP
M. Sayeed Alam and Mahmud Zubayer (2010) they founded that in SAARC
FDI from outside is more important than in intra-regional investments in
most the countries (the only exception is Nepal) where Indian investments
dominated. The concept of some region can be applicable to increase intra-
regional FDI. The FDI has a significant impact on GDP of SAARC countries.
Muhammad Zahid Awan at el (2010) they found that FDI in Pakistan is
considered as a vital source of external capital flows to meet saving-

investment gap and export-import gap as well. They examine the overall
impact of FDI inflows into the economy of Pakistan by using annual time
series data for the period of 1971 to 2008. They concluded that debt servicing
and GDP found statistically insignificant and it seems that these variables
have no significant impact on FDI inflows into Pakistan.Onakoya (2012)
seeks the impact of FDI on GDP in different sectors of Nigeria country
through using three-stage least square (3SLQ) technique and Macro
Econometric model of simultaneous equation. He found that FDI affect the
GDP but significantly cast an impact on the output of that economy.Zeeshan
and Antique (2012) investigated the relationship of FDI and GDP in Pakistan.
Cobb – Douglas Production function was used along with regression equation
to draw conclusion from data period of 1971-2001.Athukorala (2003) studied
the impact of FDI on GDP in the context of Sri Lanka and found that FDI
contributes to accelerate the GDP rate but it is not a sole factor that affects
GDP. In order to gain these results, he used Econometric framework because
regression was proved not so much supportive in that context. In contrary,
Bashir & Shakir (2012) found two way causality or bidirectional relationship
between FDI and GDP growth of Bhutan, India, Pakistan and Sri-Lanka, an
unidirectional positive causal relationship, on the other hand, for Afghanistan
and Nepal. However, their research did not find any causal relations between
FDI and GDP growth for Bangladesh and Maldives.Barua (2013) studied the
impact of FDI on Indian GDP growth & Export and found FDI has
significant impact on the GDP growth and total export of India. Banga (2006)
found that FDI has significantly increased the Indian manufacturing exports.
De Mello (1999), however, found weak causal relation between FDI and
economic growth of 32 developing countries. Thus concluded, “Whether FDI
can be deemed to be a catalyst for output growth, capital accumulation, and
technological progress seems to be a less controversial hypothesis in theory
than in practice”. Similarly, Haddad & Harrison (1993) did not find any
positive effect of FDI on economic growth of developing countries Sayeed,
2010, on the other hand, has found that the external FDI has significant
impact on the SAARC economic growth than from the internal SARRC FDI
flows. The only exception found is Nepal where India is the major
investor.FDI is one of the most important forms of foreign capital inflow in

the developing countries and is a substantial component of capital formation
Kumar & Pradhan, 2002. Research conducted by Emdad & Quamrul (2006),
found FDI has significant impact on industrialization, economic development
and growth of Bangladesh. Bacha (1974) and Saltz (1992) found FDI is
negatively correlated with economic growth in the developing countries. In
contrast, empirical literatures also support the modernization view that FDI
has positive impact on economic growth. Blamestorm & Kokko (1998) found
positive relationship between FDI and economic growth for 78 developing
countries. Similar results were found by Borensztein, et al., (1998)
considering technological diffusion through FDI on 69 developing countries.
Moreover, their research shows FDI and economic growth complements each
other on those countries. Research conducted on ASEAN-4 countries by
Marwan & Tavakoli (2004), 47 African countries by Lumbila (2005), 118
countries worldwide by Aghion ,et al., (2006), 87 different countries by
Morrissey & Lensink (2006), for Singapore and Malaysia by (Sissoko &
Feridun, 2006) and Har Wai Mun et al., (2008) respectively found that FDI
has positively impacted the economic growth of those countries. On the other
hand, Basu & Ckakraborty (2002) identified that positive effect of FDI is
larger in open economies and bidirectional towards the economic growth
whereas, it is unidirectional in a close economy meaning GDP growth
influence the FDI flow. A similar trend was identified by Blomstrom, et al.,
(2000) where the research shows that FDI have positive impact on economic
growth for those countries who has reached certain income level. Various
other factors of the host economy such as political environment, institutional
environment, tax, literacy rate and macro-economic strength also plays
important role on how FDI might affect the growth of economy (Mallampally
& Sauvant, 1999). This shows countries with certain infrastructure can only
benefits from the FDI inflows.Research conducted by Borensztein, et al.,
(1998); Wu & Hsu (2008), also found strong positive relation between skilled
human capital and FDI impact on economic growth of host country.
However, some empirical research shows that there exist unidirectional
relations between economic growth and FDI meaning higher the economic
growth more the FDI inflows for some Asian countries. (Basu &
Ckakraborty, 2002). Hansen & Rand (2006), Nguyen Phi Lan (2006) and Al-
Iriani & Al-Shamsi (2007) found bidirectional relationship between FDI and
economic growth for ASEAN-5 countries, China, 31 developing countries,
Vietnam and 6 Gulf Cooperation Countries (GCC) respectively. Esther &
Folorunso (2011) have investigated the impact of FDI flows on economic
growth in Nigeria. Their study found that FDI had a beneficial impact on the
economic growth. However, they also report that the extent to which FDI
influences the economic growth positively could be limited by human capital.
Zakia & Ziad (2007) have also tested the effect FDI on the economic growth
of Jordan, in conjunction with testing the imports on the same dependent
variable, over the period (1976-2003). The estimated results point toward the
existence of bidirectional relationships between FDI and output, and between
imports and output as well. The results have indicated supporting evidence of
FDI and import-Led Growth Hypothesis for Jordan. Thomas, et al. (2008)
have argued that multinational corporations’ investment in the host country
imposes the pressure on the local firms to develop new technologies and
innovate. This also explains the reason the developing countries are interested
in taking measures that attract foreign direct investment. Largely, the
developing countries face the issue of gap between savings and investment
which has to be bridged by FDI. This results in technology transfer, job
creation, and productivity increase and competition enhancement.Kobrin
(2005) and Le and Ataullah (2006) such benefits have encouraged the
developing nations, including Pakistan, to attract FDI inflows. In order to
ascertain the existence of such benefits, many studies have been conducted to
check the impacts of FDI on growth. However, theories and empirical
literature happen to offer mixed indication regarding the impact of FDI on
economic growth in developing countries. The aforementioned mixed
theoretical framework leads the empirical studies conducted by various
scholars e.g. Shah et al (2003), Borensztein, et al. (1998) Makki and
Somwaru (2004) Campos and Kinoshita (2002) and Zhang (2001) among
others. For example, Zhang (2001) reported that FDI promotes economic
growth in countries where the domestic infrastructure is well developed and
trade and FDI policies are more liberal.
Tim Afghanista Banglades Bhuta Maldive Nepa Pakista

e n h n India s l n Sri Lanka
198 266.5 267.66868
0 272.65529 227.75195 333.4 8 268.295 129.6 303.051 4
198 270.4 289.13068
1 264.11132 247.64962 350.13 7 273.351 148.1 348.295 9
198 274.1 307.63830
2 .. 220.71881 347.22 1 282.223 152.3 368.277 3
198 291.2 328.65042
3 .. 204.41768 376.48 4 328.123 152 332.521 9
198 276.6
4 .. 213.99666 374.91 7 598.871 156.7 349.182 378.93719
198 296.4 369.58194
5 .. 245.4539 370.95 4 670.871 155.4 337.829 2
198 310.4 390.35075
6 .. 233.65805 420.68 7 723.016 165.4 335.02 9
198 340.4 401.47719
7 .. 253.97446 512.19 2 695.81 167.8 339.332 2
198 354.1 413.45499
8 .. 270.6996 557.08 5 803.73 193.5 379.455 7
198 346.1 408.45084
9 .. 285.82921 528.46 1 875.412 191.1 384.364 3
199 367.5 463.61863
0 .. 306.2687 564.78 6 963.842 191.9 371.679 2
199 303.0 513.25853
1 .. 293.16042 467.7 6 1064.06 202.1 411.859 5
199 316.9 547.05471
2 .. 293.645 469.2 5 1205.65 170.6 429.147 9
199 301.1 576.78001
3 .. 300.55575 441.68 6 1328.61 178.6 442.492 3
199 647.57904
4 .. 299.53304 509.12 346.1 1431.62 193.3 434.465 9
199 373.7 714.23342
5 .. 329.42408 566.86 7 1569.96 204 489.882 7
199 399.9 756.65707
6 .. 394.71748 584.38 5 1737.7 204.7 497.216 3
199 415.4 817.06434
7 .. 401.49869 663.33 9 1926.24 217.8 476.381 9
199 850.81142
8 .. 407.42919 667.91 413.3 2011.87 210.6 461.217 1
199 .. 409.5432 725.12 442 2154.23 214.1 454.276 838.88386
9 7
200 443.3 869.69651
0 .. 418.06897 718.19 1 2234.58 229.5 576.196 7
200 451.5
1 .. 415.03443 764.44 7 3039.33 246.7 544.494 832.80344
200 470.9 867.49121
2 179.42661 413.08025 845.51 9 3049.2 244.7 534.304 4
200 546.7 982.19564
3 190.68381 446.31066 962.1 3 3475.98 252.4 599.376 6
200 627.7 1065.7844
4 211.38212 475.29192 1068.4 7 3941.43 286.2 687.836 4
200 714.8 1248.6981
5 242.03128 499.46194 1228.4 6 3639.97 315.8 748.923 9
200 806.7 1435.8171
6 263.73369 509.64014 1331 5 4809.96 346.9 836.861 8
200 1028. 1630.3889
7 359.69324 558.05186 1757.2 3 5574.45 391.4 908.095 1
200 998.5
8 364.66074 634.98706 1828.1 2 6614.16 470.5 990.847 2037.3221
200 2090.4018
9 438.07603 702.26441 1819.2 1102 6636.41 478.2 957.996 3
201 1357. 2799.6488
0 543.30304 781.15359 2258.2 6 7076.66 592.4 987.41 8
201 1458. 3200.8338
1 591.16276 861.75844 2563.3 1 7291.43 699.4 1164.98 3
201 1443. 3350.5218
2 641.87148 883.105 2538.9 9 7265.61 698.5 1198.11 8
201 1449. 3610.2893
3 637.16552 981.83988 2472.7 6 7928.46 715.9 1208.9 6
201 1573. 3819.2535
4 613.85669 1118.8537 2652.2 9 8499.37 743.4 1251.16 3
201 1605. 3843.7806
5 578.46635 1248.4534 2752.7 6 9033.39 792.6 1356.67 7
201 1732.
6 547.22811 1401.6205 2930.6 6 9209.29 777.1 1368.45 3886.2915
201 1981. 4077.0437
7 556.302 1563.9139 3286.6 7 9540.63 911.4 1464.99 2
201 2005. 4080.5671
8 524.16288 1698.3504 3243.2 9 10330.6 1039 1482.31 2
201 2104. 3853.0836
9 502.11549 1855.7398 .. 1 10790.5 1071 1284.7 9
Graph 1 the GDP trend covering period from 1980 to 2019.

GDP
12000
10000
8000
6000
4000
2000
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
Afghanistan Bangladesh Bhutan India

Maldives Nepal Pakistan Sri Lanka
Banglades
Time Column1 Afghanistan h Bhutan India Maldives Nepal Pakistan Sri Lanka
1980 0.247136 0.046918 .. 0.042485 -0.30614 0.015417 0.269011 1.068684
1981 0.005174 0.02647 .. 0.047506 -0.06699 -0.01011 0.384635 1.115632
1982 .. 0.03757 .. 0.035912 -6.00803 -0.00125 0.20775 1.332999
1983 .. 0.002294 .. 0.002584 0.415011 -0.02452 0.102667 0.731028
1984 .. -0.00292 .. 0.009069 -0.12785 0.036804 0.178192 0.53963
1985 .. -0.02989 .. 0.045628 0.951595 0.02481 0.421864 0.437606
1986 .. 0.01119 .. 0.047284 3.805441 0.041041 0.331453 0.464046
1987 .. 0.013191 .. 0.076091 3.610134 0.047003 0.387921 0.890493
1988 .. 0.006916 .. 0.030766 0.7117 0.019501 0.484737 0.655203
1989 .. 0.000861 .. 0.085157 2.321466 0.011914 0.524258 0.282533
1990 .. 0.01025 0.533712 0.07374 2.603573 0.163746 0.612998 0.539743
1991 .. 0.004491 0.239956 0.027226 2.658832 0.056611 0.566385 0.537191
1992 .. 0.011738 .. 0.095942 2.316982 0 0.688315 1.263792
1993 .. 0.042362 .. 0.197056 2.140686 0 0.672761 1.881082
1994 .. 0.033012 .. 0.297386 2.456659 0 0.805119 1.420196
1995 .. 0.004998 0.016499 0.594986 1.812258 0 1.191753 0.429754
1996 .. 0.029135 0.442449 0.617479 2.068299 0.423749 1.456056 0.862546
1997 .. 0.288897 -0.19128 0.860209 2.244855 0.468752 1.147229 2.84958
1998 .. 0.380236 .. 0.625286 2.132576 0.247612 0.81361 1.224592
1999 .. 0.350304 0.250641 0.472645 2.091212 0.08644 0.844795 1.126766
2000 .. 0.525362 .. 0.765213 3.573782 -0.00882 0.375528 1.058988
2001 .. 0.145444 .. 1.056378 2.360553 0.347092 0.475565 1.090747

2002 1.232991 0.095579 0.465665 1.011572 2.755601 -0.09837 1.033728 1.188278
2003 1.280019 0.445961 0.557959 0.605889 3.020036 0.233444 0.581949 1.211327
2004 3.57581 0.689472 1.29811 0.765601 4.314674 -0.00574 1.037494 1.126677
2005 4.364535 1.171209 0.779343 0.886101 4.554997 0.030156 1.833322 1.116129
2006 3.414004 0.635657 0.699745 2.130168 4.05198 -0.0735 3.11297 1.69626
2007 1.935703 0.817754 6.321598 2.073396 7.088057 0.055606 3.668323 1.863973
2008 0.455364 1.449748 0.256066 3.620522 7.979034 0.007932 3.19736 1.84753
2009 0.451056 0.879495 1.482941 2.651593 6.73534 0.297715 1.390402 0.960391
2010 1.203125 1.068935 4.862689 1.635034 8.363764 0.548295 1.141305 0.841873
2011 0.293038 0.983167 1.752383 2.002065 15.26593 0.497115 0.620823 1.464052
2012 0.284096 1.188103 1.368716 1.312934 7.898939 0.487781 0.382827 1.37521
2013 0.234965 1.735419 1.163504 1.516276 10.95038 0.384925 0.576511 1.254815
2014 0.20979 1.468713 1.234075 1.695659 9.016595 0.151991 0.772219 1.126095
2015 0.849679 1.451288 0.321968 2.092116 7.251039 0.24238 0.618356 0.843203
2016 0.48336 1.053552 0.550455 1.937363 10.42761 0.500315 0.924442 1.088638
2017 0.255222 0.724996 -0.67556 1.506588 9.666581 0.77943 0.819523 1.570116
2018 0.612979 0.883679 0.108299 1.552336 10.80549 0.233728 0.552187 1.825307
2019 0.122528 0.662019 .. 1.760283 15.5543 0.605569 0.797205 0.902509
Graph 2 the FDI trend covering period from 1980 to 2019.

FDI
20
15
10
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
-5
-10

Time Column1 Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka
1980 .. .. .. 11.34607 .. 14.6845 11.93823 26.14541
1981 .. .. 9.933142 13.11255 .. 11.14486 11.87991 17.969
1982 .. .. 9.904431 7.890743 .. 11.69855 5.903529 10.82575
1983 .. .. 18.02372 11.86808 .. 12.37724 6.362033 13.96439
1984 .. .. 7.03282 8.318907 .. 2.845785 6.087167 16.63825
1985 .. .. 1.877347 5.556424 .. 8.052641 5.614839 1.48118
1986 .. .. 9.95086 8.729721 .. 18.99895 3.506414 7.976362
1987 .. 9.874696 6.368715 8.801126 .. 10.75033 4.681219 7.717166
1988 .. 7.412766 10.08403 9.383472 .. 8.983003 8.837937 13.99155
1989 .. 6.04548 8.778626 7.07428 .. 8.846887 7.844265 11.56754
1990 .. 6.126718 10 8.971233 .. 8.2397 9.052132 21.49525
1991 .. 6.357364 12.2807 13.87025 .. 15.55745 11.79127 12.18563
1992 .. 3.634077 15.98011 11.78782 .. 17.14952 9.509041 11.38344
1993 .. 3.014819 11.20637 6.32689 .. 7.505394 9.973665 11.74674
1994 .. 5.31374 6.993392 10.24794 .. 8.349287 12.36819 8.448712
1995 .. 10.29781 9.495625 10.22489 .. 7.62297 12.34358 7.674849
1996 .. 2.377129 8.789659 8.977152 .. 9.220467 10.37381 15.93583
1997 .. 5.305601 6.513286 7.164252 .. 4.009989 11.37549 9.573696
1998 .. 8.402238 10.57702 13.23084 .. 11.24447 6.228004 9.364243
1999 .. 6.106696 6.777329 4.66982 .. 7.451113 4.142637 4.691706
2000 .. 2.208256 4.010994 4.009436 .. 2.47882 4.366665 6.176276
2001 .. 2.007174 3.410405 3.779293 0.672577 2.688304 3.148261 14.15846
2002 .. 3.332565 2.48343 4.297152 4.178672 3.029399 3.290345 9.551032
2003 .. 5.668708 1.566152 3.805859 -1.26065 5.707009 2.914135 6.314638
2004 .. 7.587536 -18.1086 3.767252 -1.68541 2.841811 7.444625 7.575926
2005 12.68627 7.046618 5.311513 4.246344 1.300275 6.836333 9.063327 11.63969
2006 6.784597 6.765261 5.000454 5.796523 2.738421 6.920336 7.921084 10.02018

2007 8.680571 9.106985 5.156111 6.372881 6.794774 2.269219 7.598684 15.84211
2008 26.41866 8.901945 8.32716 8.349267 12.04146 9.90783 20.28612 22.5645
2009 -6.81116 5.423472 4.361122 10.88235 4.530177 11.09482 13.64777 3.464963
2010 2.178538 8.126676 7.036383 11.98939 .. 9.326504 12.93887 6.217649
2011 11.80419 11.39517 8.848986 8.858361 .. 9.227075 11.91609 6.716768
2012 6.441213 6.217504 10.91966 9.312446 .. 9.45981 9.682352 7.542914
2013 7.385772 7.530406 7.006667 10.90764 .. 9.040163 7.692156 6.90845
2014 4.673996 6.991639 8.271061 6.353195 .. 8.364155 7.189384 3.179002
2015 -0.66171 6.19428 4.548144 5.872427 .. 7.868909 2.529328 3.768368
2016 4.383892 5.513526 3.219887 4.941026 0.502509 8.790343 3.765119 3.958888
2017 4.975952 5.70207 4.955084 2.490887 2.817473 3.627096 4.085374 7.704138
2018 0.626149 5.543621 2.723964 4.860699 -0.13337 4.061163 5.078057 2.135038
2019 2.302373 5.591996 2.725821 7.659695 0.22003 5.568685 10.57836 3.528394
Graph 3 the CPI trend covering period from 1980 to 2019.
CPI
30
20
10
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
-10
-20
-30

Conclusion:
This study investigates the impact of FDI on GDP of Pakistan, data is
comprises on the time period from 1980-2019, which is collected from
the world data bank .Empirical results indicate that there is a positive
relationship between the FDI and GDP and have a negative relationship
with CPI. When FDI increase the GDP of the countries will positively
affected by FDI.The FDI has an overall positive and significant impact
on the Countries economy both in long run and short run). One of the
reasons to explain the positive impact is that the FDI inflow brings the
advanced technology and the investment enhancing the country
economy. Further, the contribution of domestic private investment to
economic growth has been found to be more consistent and reliable than
the contribution of FDI with respect especially to economic growth. If
additional factors like the adverse balance of payments consequences of
the resulting profit repatriation, loss of employment from increased
capital intensity are taken into consideration, FDI tends to lose its
attraction as a prime factor. The effect of government expenditure on
economic growth is found negative and insignificant. There are strong
reasons for maintaining the public sector. Since increased in the
government expenditure tends to can crowed out private investment, its
net contribution are typically accompanied by suppression of private

sector in terms of complicated, long winding and inconsistent regulatory
framework for the private sector, which is not conducive to foreign
investment either. The results also state that labour productivity is low
across sample countries. This is an unfortunate conclusion, but
consistent with prior expectations. Since labour is considered to be
prime and potentially an important factor of production, improvement in
its productivity should be a policy goal of government. The main reason
for the low productivity of labour is the low quality of human capital.
The capital intensive growth strategy was typically followed by
developing countries with surplus labour force and lack of physical
capital is the real bottleneck of growth. This growth strategy implies that
quality of labour is at secondary importance. There is a need to give
preference to invest in human capital through investment in education
and health over other measures. In fact, it must be recognized now that
any growth strategy which neglects the importance of human capital
cannot be expected to yield long-term dividends. .In this paper, I mainly
study the relation between the FDI and GDP. It is also importance to
understand how others institutional factors impact the economic growth,
which can be addressed in the future papers. As I stated before, Busse
and Hefeker (2007) pointed out that the political risk and the quality of
institutions in the host country matter most for the multinational
companies in making decision about where to invest in developing
countries. The countries with democratic stability are more likely to be
attractive for multinationals and opposite to it countries with higher
political risk attract small FDI. The government stability, the absence of
religious and the ethnic conflicts and the democratic accountability
processes are more closely to be associated with the inflow of the FDI.
REFERENCES:
[1] Esther O. Adegbite, Folorunso. S. Ayadi, The role of foreign direct investment in economic
development: A study of Nigeria, World Journal of Entrepreneurship, Management and
Sustainable Development, 6(1/2), (2011), 133-147.
[2] Mallampally, P. & Sauvant, P., 1999. Foreign Direct Investment in developing countries.
Finance and Development, 36(1), p. 36.
[3] Zakia Mishal, Ziad Abulaila, the Impact of Foreign Direct Investment and Imports on
Economic Growth: The Case of Jordan, Journal of Economic and Administrative Sciences,
23(1), (2007), 1-31.
[4] Sissoko, Y. & Feridun, M., 2006. Impact of FDI on economic development: a causality
analysis for Singapore, 1976-2002. Boston, MA, 6th Global Conference on Business and
Economics, Harvard University.
[5] H. Thomas, X. Li and X. Liu, Ownership Structure and Now Product Development in
Transnational Corporation in China, Transnational Corporations, 17(2), (2008), 17-44.
[6] Borensztein, E., De Gregorio, J. & Lee, J., 1998. How does foreign direct investment affect
economic growth? Journal of International Economics, 45(1), pp. 115-135.
[7] Lumbila, K., 2005. What makes FDI work? A panel analysis of the growth effect of FDI in
Africa. , Africa Region Working Paper Series No. 80, Africa Region, the World Bank,
Washington DC...
[8] S. Kobrin, the Determinants of Liberalization of FDI Policy in Developing Countries: 1991-
2001, Transnational Corporations, (2005), 14(1), 67-103. [5] M.H. Le and A. Ataullah, Foreign
Capital and Economic Performance of Pakistan, The Lahore Journal of Economics, 7(1), (2006),
1-32.
[9] Banga, R., 2006. The export diversifying impact of Japanese and US foreign direct
investments in the Indian manufacturing sector. Journal of International Business Studies,
Volume 37, pp. 558-68.
[10] Abbas, Q., Akbar, S., Nasir, A., Amanullah, H. & Naseem, M. (2011) Impact of Foreign
Direct Investment. Global Journal of Management and Business Research, Volume 11 Issue 8
Version.
[11] Morrissey, O. & Lensink, R., 2006. Foreign direct investment: flows, volatility, and the
impact on growth. Review of International Economics, 14(3), pp. 478-93.
[12] Haddad, M. & Harrison, A., 1993. Are there spillovers from direct foreign investment?
Journal of Development Economics, 42(1), pp. 51-74.
[13] Nuzhat Falki (2009) “Impact of Foreign Direct Investment on Economic Growth in
Pakistan” International Review of Business Research Papers Vol. 5 No. 5
[14] Nguyen Phi LAN, 2006. Foreign direct investment in Vietnam: impact on economic growth
and domestic investment. mimeo, Centre for Regulation and Market Analysis, University of
South Australia, Adelaide.
[15] Hansen, H. & Rand, J., 2006. On the causal links between FDI and growth in developing
countries. World Economy, 42(1), pp. 21-41.
[16] Onakoya A. B., Foreign Direct Investments and Economic Growth in Nigeria: A
Disaggregated Sector Analysis Journal of Economics and Sustainable Development 3(10)
(2012).
[17] Adam, A. & Tweneboah, G. (2009), Foreign Direct Investment and Stock Market
Developments. International Research Journal of Economics Issue, 26.
[18] A Nexus between Foreign Direct Investment & Pakistan’s Economy, Muhammad Zahid
Awan, Bakhtiar Khan, Khair uz Zaman International Research Journal of Finance and
Economics Issn.
[19] Carkovic, M. & Levine, R., 2002. Does foreign direct investment accelerate economic
growth?. Working Paper No. 2, Department of Business Finance, University of Minnesota, Twin
Cities, MN.
[20] Mohammad SALAHUDDIN, Muhammad SHAHBAZ and Muhammad IRFAN CHANI
(2010), A Note on Causal Relationship between FDI and Savings in Bangladesh, Theoretical and
Applied Economics, Volume XVII (2010), No.
[21] Bacha, E., 1974. Foreign capital inflow and the output growth rate of the recipient country.
Journal of Development Studies, 10(3-4), pp. 374-381.
[22] De Mello, L. J., 1999. Foreign direct investment in developing countries and growth: a
selective survey. The Journal of Development Studies, 34(1), pp. 1-34.
[23] Atique Z., Ahmad M. H., Azhar U., the Pakistan Development Review 43(3) (2004) 707-
718. 11(552).
[24] Sayeed, A., 2010. Intra-regional foreign direct investment (FDI) prospect in South Asian
Association of Regional Cooperation (SAARC) region. International journal of economics and
finance, 2(3), pp. 114-117.
[25] Barua, R., 2013. A Study on the Impact of FDI Inflows on Exports and Growth of an
Economy: Evidence from the Context Indian Economy. Journal of Arts, Science and Commerce,
3(July), pp. 124-31.
[26]. Intra-Regional Foreign Direct Investment (FDI) Prospect in South Asian Association of
Regional Cooperation (SAARC) Region, M Sayeed Alam, Mahmud Zubayer International
Journal of Economics and Finance Vol. 2, No. 3; August 2010.
[27] Athukorala P. P. A. W. (2003). The Impact of Foreign Direct Investment for Economic
Growth: A Case Study in Sri Lanka. International Conference on Sri Lanka Studies.
[28] Bashir, R. & Shakir, R., 2012. FDI and Economic Growth in SAARC: An Empirical
Analysis. GMJACS, 2(1), pp. 65-75.
[29] Emdad, M. U. & Quamrul, A., 2006. The impact of poor governance on foreign direct
investment: The Bangladesh experience. Beijing, PRC, Network of Asia-Pacific Schools and
Institutes of Public Administration and Governance (NAPSIPAG) Annual Conference 2005.
[30] Kumar, N. & Pradhan, J., 2002. Foreign Direct Investment, Externalities and Economic
growth in developing countries: Some empirical explorations and implications for WTO
negotiations on investments. RIS discussion paper No. 27/2002.
[31] Blomstrom, M., Globerman, S. & Kokko, A., 2000. The determinants of host country
spillovers from Foreign Direct Investment. Centre for Economic Policy Research Discussion
Paper No 2350.
[32] Borensztein, E., De Gregorio, J. & Lee, J., 1998. How does foreign direct investment affect
economic growth?. Journal of International Economics, 45(1), pp. 115-135.
[33] Shah and Ahmed, the Determinants of Foreign Direct Investment in Pakistan: an Empirical
Investigation, the Pakistan Development Review, 42(4), (2003).
[34] E. Borensztein, J. De Gregorio and J-W. Lee, How Does Foreign Direct Investment Affect
Economic Growth, Journal of International Economics, 45, (1998), 115-135.
[35] S.S. Makki and A. Somwaru, Impact of Foreign Investment and Trade on Economic
Growth: Evidence from Developing Countries, American Journal of Agricultural Economics, 86,
(2004), 795-801.
[36] N. Campos and Y. Kinoshita, Foreign Direct Investment as Technology Transferred: Some
Panel Evidence from the Transition Economies, The Manchester School, 70, (2002), 398-419.
[37] K.H. Zhang, How Does Foreign Investment Affect Economic Growth in China? Economics
of Transition, 9, (2001), 679-693.
[38] A. Akinolo, Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation,
Journal of Policy Modelling, 26, (2004), 627-639.
[39] A.B. Ayanwale, FDI and Economic Growth: Evidence from Nigeria, Nairobi, African
Economic Research Consortium Paper, 165, (2007).
[40] N. Hermes and R. Lensink, Foreign Direct Investment, Financial Development and
Economic Growth, the Journal of Development Studies, 40, (2003), 142-163.

Impact of Foreign Direct Investment On Gross Domestic Product of SAARC Countries

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Impact of Foreign Direct Investment On Gross Domestic Product of SAARC Countries

Uploaded by

Copyright:

Available Formats

2020

ASSIGNMENT OF INTERNATIONAL FINANCE

Impact of Foreign Direct Investment on Gross

Keywords: GDP, FDI. CPI, SAARC.

considered as a vital source of external capital flows to meet saving-

investor.FDI is one of the most important forms of foreign capital inflow in

Tim Afghanista Banglades Bhuta Maldive Nepa Pakista

Graph 1 the GDP trend covering period from 1980 to 2019.

Afghanistan Bangladesh Bhutan India

2001 .. 0.145444 .. 1.056378 2.360553 0.347092 0.475565 1.090747

Graph 2 the FDI trend covering period from 1980 to 2019.

Afghanistan Bangladesh Bhutan India

2006 6.784597 6.765261 5.000454 5.796523 2.738421 6.920336 7.921084 10.02018

Afghanistan Bangladesh Bhutan India

net contribution are typically accompanied by suppression of private

You might also like