The Impact of Country’s Competitiveness on FDI Inflows: Empirical Evidence from South Asia and Southeast Asia

This research article explores the impact of competitiveness factors to attract foreign direct investments (FDI) towards developing countries in South Asia and Southeast Asia since foreign direct investments provide a substantial contribution to achieving high economic growth. To meet the objective, a balanced panel data analysis was implemented using quantitative data considering four South Asian countries and Six South East Asia countries as a sample for developing countries. The analysis consists of examining the impact of all competitiveness factors highlighting the effect of three main categories of competitiveness factors of the Global Competitiveness Index (GCI) classification: factor-driven, efficiency-driven, and innovation-driven. The findings of the study reveal that all three competitive dimensions; factor-driven, efficiency-driven, and innovation-driven dimensions which are published by the World Economic Forum under the Global Competitiveness Index have a significant impact on attracting foreign direct investment towards developing countries. Among them, labour market efficiency, financial market development and macroeconomic environment are the three major determinants of attracting more foreign direct investments towards the developing countries located in South Asia and Southeast Asia. Therefore, this study recommends that developing countries which still unable to attract sufficient foreign direct investment must be concerned about creating a favourable environment by focusing on competitive factors provided by the global competitiveness index. Further, the development of the labour market, financial market and macroeconomic environment should also be uplifted with high consideration to attract more foreign investments.