In This Article Politics of Foreign Direct Investment in South Asia

  • Introduction
  • General Overviews: The Trends and Methodology of FDI Flows in South Asia
  • Classical Readings on FDI
  • Multinational Enterprises in South Asia
  • Socio-Political Conflicts in FDI Flows in South Asia

Political Science Politics of Foreign Direct Investment in South Asia
by
Sojin Shin
  • LAST MODIFIED: 27 October 2016
  • DOI: 10.1093/obo/9780199756223-0195

Introduction

Politics of foreign direct investment (FDI) would be defined as political sources of affecting the theories and practices of FDI. Politics of FDI in South Asia is especially an underexplored area in political studies. It is not only because the existing scholarly literature has excessively paid attention to the econometric approach rather than political and sociological context, but the subject has also been focused on a very few countries in South Asia. South Asia indicates the southern part of Asia particularly including eight countries—Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. The research scope of the subject, however, has been marginalized. For example, the case studies of Afghanistan, Bhutan, and Maldives hardly exist except a survey series conducted by the World Bank for the business environment. Despite various political, economic, and societal problems in the region, South Asian countries in general have reformed foreign investment regulatory regimes incrementally since the late 1970s and throughout the 1980s and 1990s. The rationale behind such economic reforms was that FDI inflows are considered to be beneficial to host economies because FDI tends to have positive relations with technology transfer, domestic investments, and economic growth. For these reasons, most of the South Asian economies have been pursuing the economic reforms until the present to attract more foreign investments. Despite the continued reforms by the South Asian economies, however, the share of FDI inflows to South Asia in world FDI flows was only 3.4 percent, and that of FDI outflows from South Asia was less than 1 percent in 2014. These figures are a stark difference compared to those of FDI flows, for example, 31 percent and 28 percent, in Southeast Asia. What explains the low level of FDI flows in South Asia? How has the level of FDI flows evolved over time in the region? What significant issues have emerged on the subject? This article provides the general overviews of the patterns and methodology of FDI flows in South Asia and parses the domestic determinants and sociopolitical conflicts of FDI in the region that have appeared in the scholarship.

General Overviews: The Trends and Methodology of FDI Flows in South Asia

UNCTAD’s World Investment Report (WIR) is an annually issued series. The series of WIR is very helpful to see the pattern and source of foreign direct investment (FDI) flows to differing regions over the world. The series is enormously useful to learn the significant issues of foreign investments in a particular region of the year. For example, UNCTAD 2015 stresses how FDI inflows to the automotive industry in South Asia, especially to India, can reshape the trajectory of industrial progress. The World Bank’s Doing Business survey series provides useful information on the various indicators for global investors to embark upon investment projects in South Asia. The report series presents the world ranking of the eight South Asian countries on several issues to ease business such as starting a business, dealing with construction permits, getting infrastructural support, protecting minority investors, paying taxes, enforcing contracts, and resolving insolvency for new investment projects. The World Bank 2009 and The World Bank 2010 are the first subnational level studies on India and Pakistan within the series. The World Bank’s reports may be beneficial for academics who would like to learn problems and prospects of FDI flows in general in South Asia. Kidron 1965 is helpful to understand the pattern of foreign investments to India in the transitional period between the colonial and the postcolonial eras. Sahoo, et al. 2014 provides an extensive introduction to FDI in five select countries in South Asia. This book is good for a comprehensive understanding of the volume, pattern, and composition of FDI inflows to South Asia in recent years, while Kidron 1965 would be illuminating for FDI flows in the earlier period. The edited volume Chowdhury and Mahmud 2008 would also be helpful to compare the macroeconomic performance of South Asian countries including FDI for the recent years.

  • Chowdhury, Anis, and Wahiduddin Mahmud, eds. Handbook on the South Asian Economies. Cheltenham, UK, and Northampton, MA: Edward Elgar, 2008.

    E-mail Citation »

    The seven chapters of this edited volume cover the seven select South Asian countries’ key economic indicators and performance such as gross domestic product (GDP), trade, and investment. FDI flows in each state are also discussed briefly in the papers of the volume. It is informative and comprehensive to understand the South Asian countries’ macroeconomic performance with a comparative perspective.

  • Kidron, Michael. Foreign Investments in India. London and New York: Oxford University Press, 1965.

    E-mail Citation »

    Kidron’s book demonstrates the pattern of foreign investments to India from the 1910s when the British capital was the most significant financial resource to the mid-1960s when the origin of foreign investments to India became quite diverse. This volume would be good to follow the various issues of policy change such as industrial policy, foreign exchange rate, taxation regime, and others in the realm of foreign investments in chronological order.

  • Sahoo, Pravakar, Geethanjali Nataraj, and Ranjan Kumar Dash. Foreign Direct Investment in South Asia: Policy, Impact, Determinants and Challenges. New Delhi: Springer, 2014.

    DOI: 10.1007/978-81-322-1536-3E-mail Citation »

    Deals with five select countries in South Asia—India, Pakistan, Bangladesh, Sri Lanka, and Nepal. It not only details the constraints to FDI inflows to the region but has also proposed reforms required to further liberalization in FDI policy. This book will be very useful for those who want to grasp a keen understanding of the main sources of FDI inflows to the five countries.

  • UNCTAD. World Investment Report 2015: Reforming International Investment Governance. Geneva, Switzerland: UNCTAD, 2015.

    DOI: 10.18356/e1ee3fa4-enE-mail Citation »

    Very informative for anyone who begins a study on FDI. The series is enormously useful to compare the FDI statistics between differing regions of the world.

  • The World Bank. World Bank Indicators.

    E-mail Citation »

    Provides the historical data of FDI inflows to a particular country in the world. FDI inflows presented in the World Bank online source are the sum of equity capital, reinvestment of earnings, and other capital. The data is available for the 1980s to the present in current US dollars.

  • The World Bank. Doing Business.

    E-mail Citation »

    Basic and informative online source for a comparative study. It ranks 189 economies in the world in the ten selected indicators of doing business. It also offers subnational ranks for several countries like India and Pakistan.

  • The World Bank. Subnational Doing Business in India 2009. Washington, DC: The World Bank, 2009.

    E-mail Citation »

    This volume covers seventeen locations with the focus on select subnational states in India on the subject of ease of doing business. The report says that the various ranks in the volume were assessed from a small and medium-sized domestic firm perspective. Despite the limited scope of methodology, the report is useful for those who want to know the varieties of institutional reforms to build investment-friendly environment among states in India.

  • The World Bank. Subnational Doing Business in Pakistan 2010. Washington, DC: The World Bank, 2010.

    E-mail Citation »

    This report deals with thirteen cities in Pakistan and measures them with indicators used for other countries’ subnational doing business reports. It was prepared by the World Bank and the Economic Reform Unit of the Pakistan’s Ministry of Finance.

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