The role of foreign direct investment on GDP growth in SAARC countries

Abstract

This study seeks to show what role foreign direct investment has played in the economic growth of SAARC member countries during the period 2000-2023. The importance of this issue stems from the fact that the inflow of foreign capital usually provides the basis for increased production, job creation, and infrastructure development. For this reason, this study attempts to examine the relationship between foreign capital flows and GDP in detail. For this purpose, data from eight SAARC member countries have been collected and analyzed in the form of panel data. In the model used, GDP is the dependent variable and foreign investment is the main independent variable. In addition, factors such as population growth, human development index, merchandise trade volume, and gross capital formation have also been considered as control variables. Statistical analysis was performed using panel data regression, and tests such as Breusch-Pagan LM and Hausman were used to select the appropriate model. The findings of this study show that after the Great Asian Crisis, foreign direct investment has not had the same impact on GDP growth in all countries. In countries with stronger infrastructure and more targeted policies, this impact has been more significant; while in countries with weak institutions and political instability, the effect of foreign investment on economic growth is not very noticeable. In addition, variables such as population growth, human development index, volume of merchandise trade, and gross capital formation also play a decisive role in the process of economic growth and should be considered when assessing the effectiveness of foreign investment. The recommendations presented in light of this study are to improve the quality of institutions and infrastructure and, at the same time, improve regional cooperation between countries, such as developing joint policies to attract foreign investment and facilitating complex investment processes