Impact of FDI Inflows on Poverty Reduction in the ASEAN and SAARC Economies

Abstract

The aim of this paper is to reinvestigate the impact of foreign direct investment (FDI) inflows on welfare or poverty reduction in the Association of Southeast Asian Nations (ASEAN) and the South Asian Association for Regional Cooperation (SAARC) economies. We used FDI net inflows per capita and the United Nations Development Program’s Human Development Index (HDI) as the principal variables ranging from 1990 to 2014. Our analyses confirm the positive and strongly significant relationship between FDI net inflows and poverty reduction in Asia. However, it indicates significant differences between South Asia and Southeast Asia. Generally, we find that FDI has a greater impact on welfare in SAARC countries than in ASEAN countries. Our results hold true for both HDI and real gross domestic product (GDP), and are shown to be robust using both panel and pool model specifications.