DETERMINANTS OF FOREIGN DIRECT INVESTMENT: A COMPARATIVE STUDY OF TWO SOUTH ASIAN COUNTRIES

This study investigates the macroeconomic factors that determine foreign direct investment (FDI) inflows in South Asian countries. To that end, we consider Nepal and India at two levels of development. We propose seven factors: financial development, GDP growth, infrastructure development, trade openness, exchange rate, labor force, and natural resources as the possible determinants of FDI. Mean differences between Nepal and India are statistically significant for all variables, except financial development. This study finds that exchange rate and natural resources are the significant predictors of FDI in India. On the other hand, financial development and trade openness are significant predictors of FDI in Nepal. This study concludes with different policy implications for India and Nepal to increase FDI net inflow.