SUMMARY, FINDINGS AND SUGGESTIONS

Transcription

1 CHAPTER-9 SUMMARY, FINDINGS AND SUGGESTIONS Foreign direct investment (FDI) is considered to be one of the important factors, which lead to the globalization of an economy. The globalization over the last two decades has been hailed as a major development, which result in economic prosperity in developing countries. This process has an extraordinary effect on policy makers of various economies all over the world, particularly in the developing countries. FDI inflows to the developing countries have increased with a greater pace in the 1990s and accounting for about 36.6 per cent of global FDI inflows in the year Similar trends have also been visualised in India where FDI has expanded rapidly following the economic reforms initiated in the early 1990s. These were directed towards increased liberalization, privatization and deregulation of the industrial sector, integrating the economy with that of world economy by reducing trade barriers and adapting favourable policy framework toward expansion of foreign investment in the country. This has made Indian economy as a favourable destination for foreign investors. Although the FDI inflows into India have increased steadily, it is still less than one third of FDI into China in the year The two Asian giants India and China have made considerable change in the area of trade and foreign investment. Both the countries have population in excess of a billion and ability to become superpowers. Therefore, a comparison of the two is of interest in itself. However, most of the studies have compared India and China on the basis of some demographic, social and prosperity indicators like population, birth rate, death rate, life expectancy and adult literacy rate etc. But none of the studies have found the impact of FDI on macroeconomic indicators like exports, foreign exchange reserves, GDP, Gross capital formation (GCF) and Employment in India and China. So, this study endeavours to find out the reasons for attracting more FDI inflows into China as compared to India. Moreover, the study also compares the economic performance by finding the impact of FDI on economies of these countries. The present study is an attempt to find out the global trends of FDI by explaining its regional distributions, sectoral composition and emerging trends in Asia 137

2 and developing countries. The recent trends of FDI in India and China have also been compared. The study explains the theoretical framework as well as empirically investigates the determinants of FDI in India. Furthermore, the study examines the causal links between FDI and trade and also identifies the impact of FDI on macroeconomic indicators in India as well as in China. Thus the present research work aims at accomplishing the following specific objectives: To study the global trends of FDI. To compare the recent trends of FDI in India and China. To examine the factors which influence the flow of FDI in India To analyze the impact of FDI on some macroeconomic indicators in India and China. To investigate the causal links between FDI and trade in both the countries. Database and Methodology The study is based on secondary data, which has been collected from published documents like World Investment Report, World Development Indicators, Economic Survey, China Statistical Yearbook, SIA Newsletter and Handbook of Statistics of Indian Economy. In order to study the trends of Foreign Direct Investments, the annual data for the period has been used. For examining the determinants of FDI in India quarterly data for the period to has been taken. Moreover to analyze the impact of FDI on macroeconomic indicators and to investigate the causal links between FDI and trade annual data for the period for both the countries has been used. The real GDP series have been obtained from International Financial Statistics (IFS) database. The values of both series are expressed in terms of millions of US $ in constant prices. Various statistical techniques have been applied to carry out the analysis of data collected for different objectives of study. Compound Growth Rate has been used to study the recent trends of FDI in India and China as well as global trend. The technique of Cointegration has been applied to analyse the determinants of FDI in India. The impact of FDI on some macro economic parameters in India and China has also been studied by using the same technique. Granger Causality test has been used to investigate the casual links between FDI and Trade in both the countries. Augmented Dickey Fuller (ADF) test and Philip Parron test have also been applied to check the stationarity of data series 138

3 and to find out the optimum lag structure. These techniques have been employed using SPSS and Eviews 6 softwares. The major findings of the study are as follows: 9.1 Global Trends of FDI The regional distribution of FDI shows that FDI inflows increased in both developed and developing countries during the period However, the developed countries remain the prime destination for FDI which accounted for 56.7% of global inflows in the year 2008, while the share of developing countries was found to be 36.6%. Annual compound growth rate of FDI inflows has been found to be 14 % for developed countries and 13.3% developing countries with the due course of time. Developing countries witnessed a steady rise in FDI inflows but the developed countries show dominating position in this regard due to existence of comparatively sound macroeconomic environment, appropriate institutions and basic infrastructure required for attracting the FDI inflows. The developing countries received more FDI inflows as a percentage of gross fixed capital formation than the developed countries. In the year 2008, world FDI flows accounted for 12.3% of gross fixed capital formation (GFCF). However, developed countries share of FDI as a proportion of GFCF (11.4%) is less than that of developing countries (12.8%). The ratio of FDI and gross fixed capital formation for world has grown at the compound annual growth rate of 9.0% during the period of This is more than the growth rate of Developing countries (5.6%) and less than that of developed countries (10.0%). This shows that FDI and domestic investment do not always move in the same direction and FDI may be influenced by factors which do not necessarily or equally affect domestic investment. The share of developed countries (93.2%) in FDI outflows was much more than the share of developing countries (7.2%) in the total world FDI outflows in the year Developed countries still contribute a large share (81.1%) as compared to very small share (15.7%) of developing countries in the total world FDI outflows in the year It means developed countries hold very strong position 139

4 as compared to developing countries in terms of present share in total world FDI outflows. FDI outflows have grown at the compound annual growth rate of 13.0% for developing countries, 12.8% for Global and 12.7% for developed countries with the due course of time. This shows that developing countries are growing at slightly faster rate than developed countries which surely suggest improvement in the position of developing countries with the period of time. Globalisation exposed the markets of developing countries to foreign shores which led their domestic companies to cross geographical barriers. These countries are now exploring such economies of the world where cheap and best resources of production are available along with favourable investment climate. Changes in international regulatory environment have also helped in gathering momentum in the developing countries as far as the world FDI outflows are concerned. United States appeared as the largest recipient of FDI in 2008 followed by France, China, United Kingdom, Russian Federation, Spain, Hong Kong China, Belgium, Brazil, Canada, Sweden, India, Saudi Arabia, Germany, Japan, Singapore, Mexico, Nigeria, Turkey and Switzerland. During this year the top five recipients contributed 44.8% of the total world FDI inflows. The top five resource countries contributed 54.6% of world FDI outflows in United States appeared as the largest foreign direct investor country in the world followed by France, Germany, Japan, United Kingdom, Switzerland, Canada, Spain, Belgium, Netherland, Russian Federation, China, Italy, Sweden, Australia, Denmark, Austria, Norway, British Virgin Irelands and Brazil. The inflows of foreign direct investment in Asian countries increased rapidly during the period 1991 to FDI inflows into Asia varied greatly from region to region. Inflows into Asia reached at record level of US $ billion in 2008 with annual compound growth rate of 13.1% for the period Major increase in FDI inflows took place in East Asia contributing nearly 50.8% of the total FDI inflows into Asia. This is because of market based reforms, trade liberalisation and reduced restrictions on foreign investment in that region. FDI 140

5 flows into West Asia have also increased during the period 1991 to 2008 but with wide fluctuations. Apart from East and West Asia, other regions like South-East Asia and South Asia do not receive FDI commensurate with their potential. South Asia received FDI much below its potential even though it has a large market. The greatest increase took place in East Asia making it the top FDI recipient in Asia as well as in developing countries. It has also been observed that East Asia contributes a major share (50.8%) in the total FDI inflows into Asia in the year 2008, while South- East Asia holds week position in terms of quantitative aspect by contributing only 12.4% share in the total FDI inflows into Asia, But it command strong position among all the Asian regions from growth point of view. BRIC Countries prominently attract larger capital because of their huge potential in consumer market due to large population. Brazil, Russia, India and China have emerged as major destination for Foreign Direct Investment (FDI) inflows in recent years. BRIC countries contributed only 3.5 % share in the total FDI inflows in the World in the year 1991 which has shown increasing tendency in the succeeding years to become 15.9 % in the year Though China s growth in FDI inflows have recorded at the lowest compound annual growth rate of 12.4% among this group of four countries during the period from 1991 to 2008, yet it emerged as a leading market destination of foreign direct Investment. Brazil has traditionally underperformed in the FDI sphere relative to its size and resource endowment but in its recent past this country experienced commendable growth between 2006 and 2008 i.e more than double of inbound foreign investment from 18.8 US $ billion to 45.1 US $ billion respectively. Foreign direct investment inflows in Brazil have grown at the compound annual growth rate of 19.4% during the period from 1991 to Russia received less amount of FDI as compared to other countries of this group like China and Brazil, but it has surpassed both of these countries as a FDI host as the growth rate of FDI inflows is concerned. Annual compound growth rate of FDI inflows in Russia has been estimated to be % from the year India has lowest position among BRIC countries in quantitative terms of FDI inflows, yet its performance in terms of annual compound growth rate (30.1%) 141

6 with the period of time is very sound. This further indicates that India has improved its position in this aspect of FDI inflows through so many economic reforms under liberalized policy regime which has caused positive inclination in foreign investors towards Indian economy. The most striking feature of sectoral distribution of the FDI inflows is the increase in the share of the service sector and decline in share of manufacturing sector during 1990 to 2008, globally as well as developing countries. The study also found a rise in the share of primary sector in developed countries, developing countries and world FDI inflows, however fall in the share of service sector and increase in the share of manufacturing sector has been noticed with due course of time as far developed countries are concerned. The service sector experienced a corresponding increase in both developing countries (50.4% to 60.6%) and world (56.8% to 59.5%) from the year 1990 to This increase can be explained by liberalization of investment and trade in many service industries (electricity and gas, transport, finance and construction industries) in developing countries with the passage of time. 9.2 Recent Trends of Foreign Direct Investment in India and China It has been found that FDI in India and China has grown exponentially and became 526 times and 722 times respectively in 2008 as compared to the year The FDI flow in China was a mere 150 million $ in 1980 which reached at a level of million $ in Foreign direct investment in India has also increased however, this is too less as compared to China. FDI inflows in India remained marginal in 1980s but rose steadily during 1990s. It was a mere 79 million $ in 1980 which peaked at million $ in FDI inflows have shown increase at compound growth rate of 27.7% in India and 39.4 % in China from the year 1980 to As China had just started the reforms in 1978, its FDI was significantly less during the period , due to which India s FDI as a percentage China s FDI was highest. After reform process in 1991, though India s position in terms of foreign direct investment started improving, yet its share in terms of China s FDI is just percent in the year This is because of late initiation of 142

7 economic reforms in India, the failure of India to adopt international guidelines on measuring FDI statistics, Round-Tripping of capital flows, fastest sustained economic growth in China, better banking network, highly developed power sector, excellent legal framework and availability of cheap and skilled factors of production in China. 9.3 (a) Determinants of Foreign Direct Investment in India In this objective various determinants influencing the flow of FDI in India have been examined. Explanatory variables used in the study are Gross Domestic Product (GDP), Foreign Exchange Reserves (RES), Long Term Debt (LTD), Inflation (INF), Exchange Rate (EXCH) and Openness (OP). The results obtained after executing Vector error correction model (VECM) show that variables like GDP, RES, OP, INF, EXCH, and LTD are found to be statistically significant in India. The variables Openness, Inflation and Reserve have been found to be the major contributors of FDI. Openness is found to be the most significant predictor that explains 19.83% variation in FDI. It shows that the more an emerging market tries to open its economy to outside external trade, the more it can attract FDI. Export oriented FDI depends upon liberal trade policies reflected in openness of the country as the transnational corporations are not interested in market seeking behaviour initially. Inflation reflects negative relationship with FDI that explains 13.57% variation in FDI. This is because of the reason that high level of price in the country results in rising cost of production on account of increase in input prices like wages, cost of raw material, land prices and cost of capital. High price of the product also adversely affects domestic as well as international demand of product. All these factors ultimately lead to reduction in profitability in business thus discourage foreign investment in the countries with high inflation rate. Reserves explains 10.84% variation in FDI as high level of foreign exchange reserves reflects the strength of external payments position and helps to improve the confidence of the prospective investors. GDP depicts 5.035% variation in FDI as countries having more GDP growth rate can attract more FDI inflows. Larger market size (GDP), faster economic growth 143

8 and higher degree of economic development provide more and better opportunities for the foreign investors to expand and exploit developed resources of the country for taking all the profitable economic advantages. LTD explains 6.57% variation in FDI and estimated to give positive impact on FDI. Theoretically level of external indebtedness is expected to have a negative impact on FDI inflows. It comes out to give positive impact on FDI in case of India that is due to the optimum and extensive utilisation of these funds for different growth oriented economic activities like expansion of means of transport and communication, generation of power, development of banking and financial sector in the economy. This in turn made India to visualise a tremendous growth rate in manufacturing sector in past years that resulted in more FDI inflows in the country. Exchange rate has been estimated to decrease FDI by 5.351%. Volatility of exchange rate and frequent change in the value of currency create the uncertainty among the foreign investors about the price stability and monetary regulatory mechanism of the country concerned. It discourages the foreign investors to invest in a country with exchange rate instability. 9.3 (b) Determinants of Foreign Direct Investment in China Effect of variables such as Foreign Exchange Reserves (RES), Long Term Debt (LTD) and Exchange Rate (EXCH) on the FDI inflows has been studied in order to find out Determinants of FDI in China. Vector error correction model (VECM) has been applied and the results of the analysis show that all the variables such as EXCH, LTD and RES have found to be statistically significant in China. X coefficient of exchange rate indicates the positive and statistically significant impact of this variable on FDI showing that 1 % change in this variable has tendency to bring 1.874% increase in FDI. This may be due to the reason that the appreciation of the source country currency relative to that of the host country currency will reduce the relative cost of capital and enable MNCs to invest more in these countries relative to the countries with depreciated currency (Liu, 2010). 144

9 Coefficient of the variable like Long term debt has been estimated to be which shows that the 1% increase in this variable will tend to increase FDI by 1.502%. Proper utilisation of these financial resources for expansion of infrastructure and other growth oriented economic activities lead to more FDI inflows in the country The variable Foreign exchange reserves has found to be the most important variable having positive and significant impact on FDI as the coefficient of this variable (6.836) shows that 1 % change in this variable resulted an increase in FDI by 6.836%. High level of foreign exchange reserves indicates the strength of external payments position of the Economy and always helps to build the faith of the prospective investors in that country. Variables like Openness, Reserve, GDP, and LTD have estimated to give positive impact to FDI while negative impact of Inflation and Exchange rate on FDI has been noticed in case of India. All the variables like Exchange rate, Long term debt and Foreign exchange reserves have been examined to be give positive impact to FDI in China. The results of this analysis also substantiate the findings of Dees (1998), Venkataramany (2002), Shan (2002), Banga (2003), Botric and Skuflic (2005), Helldin (2007), Cheng & Ma, (2008), Casi and Resmini (2010). 9.4 Impact of Foreign Direct Investment on Selected Macro Economic Parameters of India and China Using the technique of cointegration, this objective explores the impact of FDI on macroeconomic parameters of India and China like Gross Domestic Product (GDP), Domestic Capital Formation (GCF), Export (EXP), Employment (EMP), and Foreign Exchange Reserves (RES). The impact o f FDI on these macroeconomic variables has been determined by taking five cointegrating relationships i.e. GDP with FDI, GCF with FDI, RES with FDI, EXP with FDI and EMP with FDI. The results show positive and significant impact of FDI on GDP in India as well as in China. This is due the reason that FDI enhances economic growth by promoting technological developments and increasing capital stock, level of production, income and export potential of a country. But GDP of China is more influenced by FDI as compared to India because of more growth in manufacturing sectors on 145

10 account of existence as well as optimum utilisation of resources, existence of favourable marketing structure and suitable reforms in defective policy framework of China. The impact of FDI on GCF has been found positive and significant for India as well as China. Since FDI establishes backward and forward linkages with local industries, it can also encourage domestic investment by creating investment environment and by transferring technologies. However, the relationship between FDI and domestic investment depends on government policies, the quality of FDI and domestic regulatory environment (Alfaro, 2003). There is comparatively less influence of FDI on GCF in India than China due to inadequate, inefficient and poor quality infrastructural facilities, defective marketing structure and weak regulatory system in India as compared to China. The variable exports have also found to be statistically significant variable affected by FDI in both the countries. This is because of the reason that the country with an importer of foreign technology can be postulated to have better export performance (Chopra, 2003). FDI is also expected to have strong positive relation with the exports volume. However exports are more affected by FDI in China than India as a result of reservation of many items for small scale industries, heavy taxes, instability of exchange rate and high rate of inflation in India. Positive and significant impact of FDI on employment has been estimated in both the countries. FDI helps to start new industries and also to expand existing industrial capacity, which in turn tends to increase output and thus employment in a country. It has been found that Reserves are positively related to FDI in both India and China. However, relatively more variation in Reserves is found in case of China than in India. This is because of the reason that FDI has resolved foreign exchange reserves constraints in China through its contribution toward expansion of export. Chinese economy has made commendable improvement in the export performance of the country by giving special emphasis on involvement of foreign investment in the export oriented manufacturing sector in the country, which led to expansion of foreign exchange reserves faster in China than India. 146

11 FDI influences all these macro economic variables in both the countries, but the influence of FDI on GDP, GCF, Exports, EMP and RES is more in China as compared to India. The results of our analysis corroborates with earlier studies of Athukorala and Sen (1995), Alarm (2001), Panayides at al. (2003), Lan, (2006), Ma (2009). Short run dynamics pertaining to the adjustment of disequilibrium in the short period for India and China respectively have also been studied which shows the proportion by which the long run disequilibrium in the dependent variable is corrected in each short period. It has been observed that any disequilibrium in the growth of GDP and RES would be corrected in the 0.94 years and 2.76 years respectively in India while EMP will converge toward equilibrium in 3.46 years. Coefficients for all other variables have been found statistically insignificant. In case of China any disequilibrium in the growth of FDI will converge toward equilibrium in 1.76 years while disequilibrium in the growth of EXP and RES would be corrected in the 1.54 years and 2.64 years respectively. Coefficients for all other variables have been found to be statistically insignificant. 9.5 Causality between FDI and Trade Another objective of the study was to check the causality between FDI and trade. For this objective, Granger Causality test has been employed to examine possible causal relationships among three variables i.e. FDI, Exports and Imports in India as well as in China separately. Granger causality test for China gives the results which are not similar to India that suggests that causality between two variables is also country specific. There is strong evidence of unidirectional causality running from FDI to imports and FDI to exports i.e FDI influences imports and exports but not caused by imports and exports. However, there exist bidirectional causality between imports and exports. The empirical results indicate a virtuous procedure of development for China; more FDI into China leads to more imports, which in turn leads to more exports because of synergies created by this procedure. In this sense, inward FDI at economy level in China can be regarded as efficiency seeking, which increases the volume of trade. The causation from FDI to China s export growth may also 147

12 reflect China s special FDI policy, which encourages foreign-invested firms to export their products; many firms from newly industrialized economies treat China as their export platform. The results for India show that there exists bidirectional causality between FDI and imports, FDI and exports and exports and imports which indicate that FDI causes imports (importing technologies) which in turn causes exports and exports further cause FDI. Moreover, it is also noted that FDI also causes exports which in turn leads to more imports. 9.6 Suggestions It is important for countries to take measures to maximize their growth through more and more FDI inflows. Benefits from FDI could be maximized if efforts are concentrated on attracting long term productive FDI. To attract quality FDI, a developing country must ensure a sound macroeconomic environment which requires adequate infrastructural facilities, stability of exchange rate, political stability, strong administrative will, market perfection and control over inflation. Some suggestions regarding FDI inflows are summarized as under: The analysis of this study reveals that India s performance regarding attraction of FDI inflows is very poor as compared to China. India should improve its regulatory system through better and effective monetary and fiscal reforms. There is need to strengthen infrastructure network, reforms in marketing structure and strong political will to improve international trade relations. FDI has found to be influenced by trade openness of country which implies that a more liberalised foreign investment policy framework is required in India to decrease the gap in FDI inflows of India and China. Reserves are also playing important role in influencing FDI inflows in India. There should be favourable economic environment in terms of increasing efforts like provision of subsidised raw material, power, land and tax concession for the development of export oriented manufacturing units, which in turns helps to escalate foreign exchange reserves position in India. Exchange rate and price stability must be foremost priority for the Indian economy to attract the FDI as these are estimated to be important factors influencing FDI inflows in the country. India can build a state of confidence 148

13 among the foreign investors through taking effective measures for controlling fluctuation in exchange rate and price level in a country. Serious attention should be paid toward their stabilisation as a necessary condition for foreign investment attraction strategy in India. Study also reveals that FDI promotes economic growth of a country through its positive influence on GDP, exports, reserves and employment. Thus India should give special attention towards creation of favourable environment to attract FDI to highest possible extent. It should be made integral part of development strategy of a country to achieve high growth rate by raising exports, reserves and employment and thus income and output of the country for uplifting living standard of people through increased foreign investment. Positive impact of FDI on GCF of both the countries suggests that the competitive strategy adopted by the country in the form of liberalized economic policy is not so harmful for the domestic industry. This advocates that there is always scope in country to raise its level of capital formulation through forward and backward linkages of FDI with domestic industries. The intensity of the fear of adverse impact of FDI inflows on domestic capital and loss to domestic industry due to increased competition with the foreign firms is not so severe. Moreover, India should try to raise its level of capital formation through careful implementation of foreign investment policy. The present study has found a very little but positive impact of FDI on employment in both the countries. Unemployment is the serious problem in India as well as in China on account of large size of population. Though contribution of FDI in the generation of employment is not so sizeable as compared to its influence on other parameters of the economy, yet its positive impact on employment coveys the idea to the policy makers of these countries that foreign investments can be helpful in reducing the level of unemployment in the economy. So, both the countries should exploit properly this inbuilt potential of foreign direct investment to its full extent by incorporating it as an essential part of employment elevation programmes in the country. 149

14 The results of this study show that the influence of FDI on gross domestic product, gross capital formation, exports and reserves is relatively more in China as compared to India. It is required to change India s development strategy in order to reap the full benefits of FDI inflows due to its positive influence on these macroeconomic indicators reflecting the growth of the economy. China has been able to utilise properly this potential of FDI inflows at a much faster rate than India. There is need to pursue vigorously more economic reforms by the Indian Government to frame suitable investment strategy for taking the full advantages of FDI inflows which may result in the improvement in reserves, domestic investment, exports and thus growth in all sectors of the Indian economy. Bi-causal relationship between imports and exports has been found in both the countries which suggest that India and China should focus more on technology imports and its transfer as an essential condition for expanding exports of these countries. Government of these countries should use this perspective of imports as an effective measure in formulation of their export promotion strategy. This will also promote industrial upgradation through advanced machinery and equipment. Concerns have arisen that competition to attract FDI will intensify among countries, especially the type of FDI that can bring major benefits to recipient economies by enhancing their export competitiveness or by providing linkages with domestic enterprises. In fact, countries are increasingly recognizing the positive contribution of FDI towards economic development of a country. So, there is a need of devising FDI policies and enhancing legislative and institutional structures in order to attract new investment and building new skills. 9.7 Limitations of the Study Although this study has been able to explore extensively all the set objectives yet there are some limitations of the study which are outlined as under: Impact of FDI on some macro Economic Parameters such as Gross domestic product (GDP), Gross capital formation (GCF), Exports (EXP), Foreign exchange reserves (RES) and Employment (EMP) for both the countries has been done on the basis of annual data for the period However, some more variables could have been included but due to data constraints in China the analysis was limited to only these variables. 150

15 The quarterly data of some of the variables in case of China was not available. So determinants of FDI have only been estimated for India. There are many other Asian countries which could also be included in the study but due to time and data constraints this work has been restricted to India and China only. 9.8 Scope for Further Research The governments around the world have pursued policies to encourage private sector participation in the financing and delivery of infrastructure services. The privatization of these industries risks the creation of private-sector monopolies. Therefore, governments need to develop strong regulatory policies related to the revenues and costs of the privatized utility firms. So, the relationship between the quality of the regulatory framework and foreign direct investment (FDI) in infrastructure can be examined in developing countries as FDI in infrastructure responded positively to an effective domestic regulatory framework of a country. The impact of foreign direct investment on an economy can also be investigated by increasing variables, at micro and macro level. In present study more variables can be added like bank rate, commercial lending rate, human capital, infrastructure facilities and technological capability etc. FDI inflows in South Asia were associated with a many fold increase in the investment by national investors. It is an important aspect in pursuing growth and development among countries. Its role in global businesses is crucial enough to determine whether new market trends or marketing channels affect a specific country. Therefore economic impact of foreign direct investment in South Asian countries is of interest in itself. The influence of FDI on trade is in concert with other variables, both regulatory and non-regulatory, which influence production decisions of a particular product. The relationship between foreign direct investment (FDI) and the price, production and export levels of a product can also be explored. At international level, there is a great need to strengthen the capacity of host countries, particularly developing countries, in dealing with FDI inflows. 151

16 Developed countries are far ahead of developing countries as far as economic aspects are concerned. So, the strategies of developed countries behind increasing inflows as well as outflows of FDI can be ruled out extensively. There is always scope for application of better and improved statistical technique for exploring some important dimensions of the study which remain untapped so far on account of existing research technique with so many limitations. During the past two decades, FDI has become increasingly important in developing countries. Among the developing countries, the Asian countries have large share of FDI inflows in the last three decades. The study can be further expanded by comparing economic performance of more Asian countries with longer time span for the analysis. 152