Volume: 8 Issue 11 [November 2025]

Article:The Impact of FDI on Economic Growth in Developing Countries: A Comparative Study of South Asia and Southeast Asia

Author: Sharmin Akter, Banna Rani Mondol, Sahel Najwa

Volume: November 2025, Volume 8, Issue 11

DOI: North American Academic Research, 8(11), 405-414. doi: https://doi.org/10.5281/zenodo.17921814

Abstract: This study is aimed at exploring how Foreign Direct Investment (FDI) influences economic growth in the developing nations and more so South Asia and Southeast Asia. The study applies panel data analysis in the period between 2000 and 2023 to investigate the correlation between FDI inflows and GDP growth after taking into consideration other significant variables, including human capital, gross capital formation, trade openness, government expenditures and inflation. This shows that the relationship between FDI and economic growth in both regions was positive and significant though the strength of this relationship is significantly stronger in Southeast Asia (0.56) than in South Asia (0.34). It is also established in the study that human capital, gross capital formation, and trade openness are significant in terms of determining the effectiveness of FDI, and inflation has a negative effect on growth. Institutional quality can be seen as one of the most influential elements in the process of efficiency of the FDI absorption whereby Southeast Asia would have a greater advantage of foreign investments owing to the better institutional structures. The results indicate that institutional inefficiencies and lack of infrastructure in South Asia limits the potential growth of the region due to FDI, whereas the Southeast Asian economic positive and institutional environment enables better application of FDI. The paper ends by providing policy recommendations on both regions, including the importance of enhancing quality of institutions, investing in human capital and having macroeconomic stability to ensure that the benefits of FDI are fully realized to promote long term economic growth.

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