Technological Capability as a Key Determinant for Foreign Direct Investment: The Case of Indian Sub-Continent

Abstract

This paper is pursued with the objective of investigating technological capability as a key determinant for foreign direct investment in Indian sub-continent consisting of India, Pakistan and Bangladesh. The focus of the study is to identify why some countries are attracting more inward FDI than others within the same geographical region as well as to uncover the plausible reason that could lure foreign direct investment (Indian sub-continent caters for one-fifth of the global population). Research methodology uses static panel data models involving fixed and random effects over yearly data from 1994 until 2011. Furthermore, a dynamic panel model via Park method is used on the datasets. The findings which indicate clear implications in those countries with strong domestic technological capabilities seem to have a solid influence in attracting inward FDI. The study also reveals that the relationship between domestic technological development and inward FDI is even stronger than other controlled variables (inflation, lending rates and GDP) in the model.