Impact of FDI and Institutional Quality on Economics Growth: Empirical Evidence from South Asian Countries

Abstract

Aim of the Study: Institutions and the foreign direct investment (FDI)  has been a phenomenon of academic inquiry for last ten years as far as their importance in economic literature is concerned. It is a considered opinion that a country’s economy is often affected by the FDI and various financial institutions. This research investigates and explores the impact of institutions and FDI on the economic growth of selected countries during 1996 to 2024.

Methodology: The actual GDP (proxy of economic growth) and FDI and institutions are the dependent variable and independent variables respectively. The Panel Data of six South Asian countries- Sri-Lanka, Pakistan, Bangladesh, India, Nepal and Bhutan have been analyzed for this research. World Governance Indicator (WGI) is the source of data of institutions whereas World Development Indicator (WDI) serves as the source of data for economic growth. Institutional index has been generated through the Principal Component Analysis of six indicators. Through Panel ARDL the influence of FDI and Institutions on economic growth has been evaluated in the present study.

Findings: The study finds that FDI and institutions have a healthy impact on the economic growth of the selected Asian countries. It suggests that the FDI and institutions may lead towards a stable economic growth in South Asian countries.

Conclusion: The study can further invite more detailed and rigorous academic investigation in the field and a wider range of variables can be applied to the same model of study.