Macroeconomic and Institutional Determinants of Foreign Direct Investment in SAARC Countries

Jai Kumar

jaikumarlohano8@gmail.com
School of Management, Jiangsu University, Zhenjiang (China)
https://orcid.org/0000-0002-9331-7327

Chen Xi


School of International and Public Affairs, Jilin University, Changchun 130012 (China)

Joti Kumari


Business School, Sichuan University, Chengdu 610065 (China)
https://orcid.org/0000-0002-8723-2669

Jinyan Huang


School of Management, Jiangsu University, Zhenjiang (China)

Abstract

Foreign direct investment (FDI) is considered a vital element in the development strategies of the South Asian Association for Regional Cooperation (SAARC) economies. The institutional environment and macroeconomic conditions of host countries play crucial roles in attracting FDI. This study examines the influence of macroeconomic and institutional factors on FDI in six SAARC nations – Pakistan, India, Bangladesh, Nepal, Sri Lanka, and Bhutan – from 2000 to 2020. The research explores the impact of various factors on FDI by utilizing panel data analysis methods, specifically fixed effects (FE) and two-stage least squares (TSLS). The dependent variable in this analysis is FDI inflows, while the independent macroeconomic variables include gross domestic product (GDP), financial development, inflation, and infrastructure. Institutional factors such as government effectiveness, governance level, political stability, and regulatory quality are also considered. The findings indicate that all the chosen variables significantly influence FDI inflows, except government effectiveness. SAARC governments should establish investment-friendly environments and implement fair policies to boost FDI, supporting sustainable economic growth and sustainable development goals (SDGs). This study contributes by aligning FDI strategies with global development goals, promoting inclusive growth, and improving infrastructure in the region. It extends previous research, providing deeper insights into the factors influencing FDI and its role in sustainable economic progress.


Keywords:

FDI, panel data, SAARC, macroeconomic indicators, institutional quality, Sustainable development goals

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Published
2025-01-10

Cited by

Kumar, J., Xi, C., Kumari, J., & Huang, J. (2025). Macroeconomic and Institutional Determinants of Foreign Direct Investment in SAARC Countries. Problemy Ekorozwoju, 20(1), 271–287. https://doi.org/10.35784/preko.6747

Authors

Jai Kumar 
jaikumarlohano8@gmail.com
School of Management, Jiangsu University, Zhenjiang China
https://orcid.org/0000-0002-9331-7327

Postdoctoral Researcher


Authors

Chen Xi 

School of International and Public Affairs, Jilin University, Changchun 130012 China

I am an associate Professor at the School of International and Public Affairs, at Jilin University, China.


Authors

Joti Kumari 

Business School, Sichuan University, Chengdu 610065 China
https://orcid.org/0000-0002-8723-2669

Authors

Jinyan Huang 

School of Management, Jiangsu University, Zhenjiang China

Professor at School of Management, Jiangsu University, Zhenjiang, China. Director of The Research Institute for Educational Assessment and Research Methodology (RIEARM) 



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