Abasyn Journal of Social Sciences. Vol.11 No.1

Impact of Foreign Direct Investment on The Industrial Development: Evidence from Asian Countries

Usman Ali, Shahzad Anwar, Muhammad Asif Hayat

1 Department of Management sciences, Kardan University
2 Institute of Business and Management Sciences (IBMS), The University of Agriculture

This study is conducted to examine the effect of Foreign Direct Investment (FDI) on industrial development in Asian countries. A sample of six Asian countries including Bangladesh, China,  India, Malaysia, Sri Lanka and Pakistan has been taken from a period of 1991 to 2013 and panel data model has been used. Panel diagnostic tests such as Chow test, Hausman specification  test and Breusch-Pagan test have been used to decide which panel model is to be used. These tests suggest Pooled OLS model as it got higher votes. In this research, the impact of four  explanatory variables including Foreign Direct Investment (FDI), Trade openness, interest rate and infrastructure are measured on Industrial development using Pooled OLS model. The  findings of the study suggest that FDI has significant positive relation with industrial development which shows that FDI is a very crucial element for the industrial development of any country.  Whereas trade openness has insignificant relation with industrial development. Interest rate has significant negative association with industrial development which states that if the government  increases interest rate, it will discourage the investors to make investment. Infrastructure have significant negative relation with industrial development. In case of infrastructure, the negative sign shows that despite of poor infrastructure facilities, foreign investors make investment in these countries which is a good sign. The findings of current study are similar with the  Neo-Classical Theory of Growth. The results of current study show that foreign direct investment is beneficial for industrial development as it has a positive relation.
Keywords: FDI, Industrial development, Manufacturing Sector.




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