Economic Institutions and Foreign Direct Investment in South Asia


  • Mumtaz Hussain Shah Institute of Management Studies, University of Peshawar



Foreign Direct Investment, Economic Institutions, South Asia, OECD and Panel Data.


Two fundamental questions about multinationals global investment behaviour are: Why do some nations receive more Foreign Direct Investment (FDI) than others? and How do multinational companies select which countries to invest in? This paper will try to answer both of them by analysing the significance of the presence of rigorous economic institutions in five SAARC member nations, that are, Sri Lanka, Bangladesh, Nepal, India and Pakistan for multinational investors from the five major OECD outward FDI makers, that are, United States of America, United Kingdom, France, Japan and Germany. The long-term characteristic of FDI vis-à-vis the host economy makes the existence of resilient economic institutions a desirable pre requisite. Specifically for the ones like a SAARC member that lacks abundant natural resources to lure overseas investors. The provision of such assistance reduces their scepticism of the host nation.

Dyadic data from 1997-2021 for FDI from the source into the host nations is used for regression analyses. Results from random effect panel estimation technique shows that among the institutional indicators the ones’ regulating labour disputes, business and credit issues and favourable business conditions related to freedom of international trading, from Economic Freedom of the World Index provided by the Fraser Institute significantly influences overseas investors from the major OECD economies in SAARC. Germany is the leading investor and India proves to be the most sought after FDI destination.




How to Cite

Shah, M. H. (2024). Economic Institutions and Foreign Direct Investment in South Asia. Journal of Business & Tourism, 9(02), 13–29.