The Composition Effect of Macroeconomic Factors on Foreign Direct Investment in Selected SAARC Countries

The objective of the study is to investigate the most promising economic variables i.e., foreign direct investment (FDI), exports and financial development on economic growth in selected South Asian Association of Regional Co-corporation (SAARC) countries. In addition, this study argued that whether FDI, Exports and financial development fosters or hinder economic growth in SAARC countries, for this purpose, panel data set of selected five SAARC countries namely, Bangladesh, India, Nepal, Pakistan and Srilanka considered for empirical consideration over a period of 1975 to 2011. By using two-stage least square (2SLSL) technique, empirical evidence on the effects of FDI, exports and financial development on economic growth is mix in terms of apriori expectations. In case of Bangladesh, exports and broad money supply (M2) is the positive and significant contributor to increase economic growth, whereas, M2 increases India’s GDP. FDI is the only significant contributor to increase Pakistan’s economic growth. In case of Nepal and Srilanka, broad money supply increases economic growth, whereas, due to high dependency on imports, exports could not considerably increases economic growth in those regions.