Overview

Abstract

One of the remarkable features of globalisation in the 1990s was the flow of private capital in the form of FDI, which is an important source of development finance and which contributes to productivity gains by providing new investment, better technology, management expertise, and export markets. Given resource constraints and lack of investment in developing countries, market forces and the private sector are increasingly been relied on as the engine of economic growth. In the neoclassical growth model, FDI promotes economic growth by increasing investment and its efficiency. Therefore, all countries, particularly developing countries and least developed countries (LDCs), seek FDI for the benefits it brings to the host economy. Foreign investment, especially FDI, both supplements domestic investment resources and acts as a source of foreign exchange and can relax the balance-of-payments constraints on growth. Considering the economic benefits and importance of FDI for promoting economic growth, most countries, including South Asian countries, have formulated wide-reaching changes in national policies to attract FDI.