Essays on the Impact of Foreign Direct Investments on Economic Growth, Income Inequality and Structural Transformation: The Case of Middle-Income Countries in the SAARC and ASEAN Regions

The impact of Foreign Direct Investments (FDI) on the economic growth of developing nations is a subject that has been examined extensively. Attracting FDI has been a top priority in the development models adopted by such nations, and most of them had been successful in that goal, albeit to different levels. FDI has been given such prominence in the policy tool kit of development planners due to its direct and indirect benefits. FDI contributes directly with the fresh capital infused into an economy and through other peripheral means termed ‘spillover effects’, such as knowledge and technology transfers. The consensus is that FDI is growth-enhancing, notwithstanding numerous country and region-based studies which challenge that proposition. Such division in opinions in the research domain warrants a deeper and broader examination of the FDI-growth nexus in hitherto undiscovered pathways. This thesis attempts to understand the role of FDI in the development of emerging economies in terms of growth channels, structural transformation, and income distribution. How some of the developing economies in Asia, namely the Asian tiger nations, became economic powerhouses in the last few decades has been invariably attributed to their success in attracting FDI. Other developing countries in the SAARC (South Asian Association for Regional Cooperation) and ASEAN (Association of Southeast Asian Nations) regions have also tried to emulate the development blueprints of their more successful neighbours, especially their FDI strategies, but with limited success. Nevertheless, they were able to record high growth rates from time to time during the same period compared to countries with a similar developmental background in other parts of the world. Some economists attribute this to the ‘middle-income trap’ phenomenon, characterized by frequent slowdowns, inconsistent growth, or stagnation. This makes it research worthy of examining why these countries are economically lagging despite successfully attracting FDI. Accordingly, this study focuses on middle-income countries in the SAARC and ASEAN regions to explore FDI-induced growth in depth. Also, in addition to FDI, we examine the role of other determinants of economic growth that are widely discussed in the literature, such as human capital development, institutions, infrastructure development, and international trade in the development of selected countries.