A Panel Dynamic Analysis on Inward FDI and Institutional Quality in South Asia and South East Asia

Abstract

Through the global financial crisis, South Asia and South East Asia ratified their economic prospect and by increasing integration with the world economy, a demand boom by the Asian middle-class and most importantly foreign direct investment. In this study, we focused on the FDI inflows. This study examined the impact of institutional quality on FDI inflows in South Asia and South East Asia from 1986 to 2016 using a panel-based approach. The result of Unit roots suggested using Panel ARDL. The Panel ARDL results revealed that institutional quality strongly influences FDI inflows in South East Asia and weakly in South Asia. Our findings also revealed that economic factors are strongly significant in South Asia and institutional variables are strongly significant to attract FDI inflows in South East Asia. The weak regulatory system hampers South Asian countries as there is lack of transparency, accountability in public work. Therefore, this study suggests South Asia learn a lesson from South East Asia and make an improvement to their institutional quality.