Foreign direct investment (FDI) is played a vital role for boosting up the economies of

developing countries. Hence, it is necessary to know the factors that determines the flows of
FDI in the developing countries. This study has attempted to investigate how different factors
affect the inflow of foreign direct investment in South Asian Countries. To attain the
objective this study has collected data on the respective variables for 45 years and considered
seven countries. The relationship between different economic variables and their overall
impact on FDI inflows have been examined through various panel models like basic pooled
OLS estimation, entity fixed effect model, time fixed effect estimation and random effect
model. The outcome of this study is that GDP of the country is the main factor behind the
FDI inflows in South Asian countries.

Key-words: Foreign Direct Investment (FDI), South-Asian Countries, GDP, paneldat

Introduction

South Asian countries become liberalized in 1990s and early 2000s. Since then, this region
gets attraction of the foreign investors. In the recent years many South Asian countries are
experiencing high volume of FDI inflows. Albeit, FDI inflows in the SAARC member
countries are low compared to the countries in Asia. All the SAARC member countries are
developing nations. FDI is generally considered as a great toolof economic growth and
development. However, SAARC member countries are not very much successful in getting
FDI. Hence, the burning question to the policy makers of South Asian countries is what
factors played vital role in getting FDI . General consensus is overall economic policy
oriented economic fundamentals along with national policyoriented determinants are the
factors behind the flows of FDI.According to UNCTAD(1996), government incentives like
taxholiday facilities playeda pivotal role in attracting FDI. Brewer (1993) a