Measuring the Impact of FDI and Private Domestic Investment on Growth—Case of South Asia

2019:161

This paper examines the impact of private domestic investment (PDI) on growth in comparison with the Foreign Direct Investment (FDI). It aims to conduct a cross country analysis of South Asia from 1975 to 2017. Trade Openness, Inflation, Government Expenditure, Human Capital, Exchange Rate are control variables of interest for the investment model used in this research. The countries tested are Bangladesh, India, Pakistan and Sri Lanka. Fixed Effects and Random Effects method is employed to test the panel data of the four South Asian countries. The results show that in case of South Asia on the whole, there is a positive and significant impact of PDI on growth. To further analyse the subject and put forward a potential policy for the region, the regression is decomposed into sectoral Private Domestic Investment: Primary, Secondary and Services. PDI affects the growth of South Asia, only when it is invested in the manufacturing or the primary sector.