Foreign Direct Investment and Economic Growth in BIMSTEC Countries: A Panel Data Analysis

Abstract

In the context of a globalized world driven by regional economic cooperation, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) has emerged as a platform for fostering economic growth and connectivity among its member states. Comprising seven South and Southeast Asian nations, BIMSTEC aims to enhance trade, investment, and technical cooperation, culminating in a dynamic regional economic landscape. This research paper investigates the relationship between Foreign Direct Investment (FDI) and key economic indicators, namely GDP per capita, trade openness, GDP deflator, and total reserves, within the BIMSTEC countries. Employing a panel data analysis approach covering the period 1999 to 2019, this study utilizes fixed effects and random effects models to account for individual heterogeneity and time-invariant characteristics. The choice between these models is guided by the Hausman specification test. Data from reputable sources including the World Bank, IMF, and UNCTAD are utilized to ensure data reliability.

The study's primary focus is on FDI, representing the inflow of foreign investments, as the dependent variable. Independent variables, logarithmically transformed, include GDP per capita, indicating economic size; trade openness, reflecting international engagement; GDP deflator, accounting for inflation; and total reserves, gauging external financial obligations. The analysis delves into the potential impact of BIMSTEC's forthcoming Free Trade Agreement (FTA) and Trade Facilitation Strategic Framework for 2030 on regional trade, investment, and economic growth. Additionally, the study explores the role of BIMSTEC in revitalizing India's Northeast region, acknowledging its unique geographical and economic context.

By employing case studies, country-specific examinations, and comparative assessments, the research aims to provide insights beneficial for policymakers, scholars, and stakeholders. The findings will contribute to a nuanced understanding of BIMSTEC's trade facilitation initiatives within the broader global economic dynamics, offering recommendations aligned with sustainable development goals. As BIMSTEC navigates its path towards enhanced trade cooperation and shared prosperity, this research seeks to illuminate its potential while addressing complex challenges, fostering a united and prosperous community of nations.