South Asia Economic Journal

This article examines trends and patterns of intra-regional foreign direct investment (FDI) in South Asia, with a focus on the potential for integrating production processes among countries in the region through further trade and investment policy reforms. The empirical evidence pieced together from scattered sources suggests that horizontal (market seeking) FDI has continued to dominate South Asian intra-regional FDI, with a significant shift in recent years in favour of services sector activities. Vertical (efficiency seeking) FDI in the region has remained confined to a few product lines, predominately garments, and also a few industries in which the availability of specific natural resources plays an important role in the site selection decisions of firms. In other industries, including electronics and electrical goods in which global production sharing is heavily concentrated, there is no evidence of notable cross-border operations by regional firms.

This article investigates the role of the final expenditure components in determining Nepal’s imports from India using the Autoregressive Distributed Lag approach based on the annual data for the period 1975–2011. The results of bounds testing procedure show that there exists the cointegration between Nepal’s imports from India and its determinants: personal consumption expenditure, government consumption expenditure, investment, exports and relative prices. Among the expenditure components, personal consumption expenditure is a major determinant of import demand from India, with its significant positive impact. The government expenditure is found to have no significant impact on Nepal’s imports from India. Gross domestic investment and exports have negative impact on Nepal’s import demand from India, whereas the relative prices have positive impact, indicating lack of substitutes for Indian imports. Trade liberalization also has positive impact on Nepal’s import from India.

This study investigates the role of the institutions as a determinant of foreign direct investment (FDI) in the case of Pakistan by applying the autoregressive distributed lag (ARDL) cointegration technique. The results demonstrate that the institutional quality exerts long-run impact in determining the FDI inflows. The findings suggest that institutional quality is an important determinant of the FDI in Pakistan. The joint impact of institutional quality and trade openness is also significant and positively contribute to attract FDI in the short run as well as in the long run. The findings strongly support the hypothesis that simultaneous implementation of policy mix, that is, reducing trade barriers and improvement in institutional quality, play significant role in attracting FDI in a developing country like Pakistan.

This article develops a simple methodology for calculation of growth effects of industrial clusters at national level and estimates the economic determinants of the clusters’ size-class of production by using data on 354 individual industrial clusters in India. Gross value of industrial clusters is indirectly measured and growth effects are calculated within the National Income Accounting framework. Determinants are estimated by using the grouped data on size-class of value of production by clusters. Results show that industrial clusters contributed to India’s economic growth of manufacturing sector (or Indian economy) between 8 to 3 per cent (or between 1 to 0.4 per cent) in 2002–2003 and 2003–2004, respectively. Binary Logit estimates show that industrial clusters with modern small scale industries and traditional art and craft products, high and medium heterogeneity, high and medium potential for technology upgradation and exports and those which are market or resource based are the important determinants of size-class of production of clusters. Other things being equal, an improvement in these determinants may contribute to higher gross value added and maximization of economic growth by industrial clusters. This analysis is useful to calculate the determinants of probability of individual clusters belonging to larger size-class of production at the state level. Further, the approach is relevant and applicable to estimate growth effects of industrial clusters in other South Asian countries as well.

This study shows that intermediate goods will be more affected (both adversely and favourably) than final goods due to ASEAN–India FTA. Other interesting conclusions include tariffs do not matter at all for a major part of the industries and for them the agreement has no significance. In fact, some of the most debated commodities fall in this category. For them though tariff rates have steadily increased over time, so has imports imparting a wrong sign to the tariff elasticity which means that reasons other than tariffs determine their imports and there is no point in putting them in the sensitive or exclusion list.